|Business Chronicle: Is the euro good for the dollar|
|Starting from 1 January, 2002 the euro became the legitimate currency for 12 countries in Europe: Germany, Ireland, Netherlands, Greece, Finland, Luxembourg, Austria, France, Belgium, Italy, Portugal and Spain.
Although it is obvious that the establishment of the euro made a significant effect throughout Europe, it is also fair to speculate that it also made a notable impact on the global financial system.
There are many advantages that accrued to the dominant international currency. This lofty position has been held by the US dollar since World War II.
It’s status, for example, results in cheaper financing and business transaction costs, reduced interest rates on government debt, advantageous competitive positions for financial institutions and banks, strengthened international political power, and stimulation of domestic economic growth.
The advent of the euro had immediate beneficial effects. Stability within the euro zone was increased; the costs to businesses of currency exchange and risks associated with exchange rate fluctuations were removed and economic growth was promoted. And all of these also benefited the United States. Global economic stability was enhanced. US exporters to, and investors in, the EU shared in the cost savings. Growth in the European economy was boosted, providing new opportunities for American businesses.
The US has therefore a new opportunity to join in creating a powerful partnership with Europe on global economic and financial issues.
The creation of the euro means Europe will ultimately become an equal to the United States, at least in economic terms. The two economic superpowers will have to learn to function as partners, to avoid disrupting each other and exercise their joint responsibility for the world economy. New mechanisms will be needed to maintain currency stability, keep trade and investment open and sustain economic progress.
If the United States and Europe can even begin to replicate Europe’s achievements in economic integration and political cooperation, trans-Atlantic relations could be the global success story for the next 50 years.n
Khair Mikkawi is a financial consultant in Saudi Arabia. He contributed this column to The Star.
Amman,02 24 2003