Euro opportunity

The euro, the new unified currency of the European Monetary Union, got off to just the kind of start the 11 member nations hoped for this week: It was greeted with enthusiasm, but not frenzy, on world financial markets; it settled in at $1.18 U.S., right where experts said it should; European stocks rose sharply but not absurdly; street celebrations easily outnumbered protests.

One of the early success stories continues to be Italy, which reduced its crushing deficit by half in just one year to qualify for EMU membership and which now seems committed to bringing order to one of the continent’s chronically chaotic economies. Some that didn’t make the cut — such as Greece, Poland, the Czech Republic and Hungary — are adopting the necessary reforms. Already, the leading holdout, Great Britain, is softening its opposition, with Prime Minister Tony Blair now saying the question of whether his nation joins the union is on of “when,” not “if.”

On this side of the Atlantic, the euro is more of a curiosity, a monetary theory that won’t become real until the new coins and bills appear in 2002. Those who have given the EMU some thought agree that replacing Europe’s Babel of marks, francs, guilders and pesetas with a common currency is common sense, but there is a split on whether the overnight creation of this economic behemoth (although negotiations started back in 1957) poses a threat to the supremacy of the dollar or offers unpredented opportunity.

The smart money’s on opportunity. “Right now, the euro’s more of a political success than an economic success,” says James Breece, UMaine economics professor. “The fact that 11 sovereign nations have given up the authority to print their own money and to conduct their own monetary policy is a remarkable political feat. Certainly, many differences remain, but there is a greater assurance of stability in Europe and investors like stability. Countries tend not to go to war with business partners; the more marginal economies have incentive to clean up their acts; a common currency makes investment easier. Imagine the confusion, the instability, if the United States had 50 different currencies and exchange rates.”

Perhaps most significant, according to Professor Breece, is the challenge this new continental power presents to the United States. “For years, this country’s attention, economically at least, has been focused on Asia-watching from the West Coast. Now it’s the East Coast’s turn.”

Jonathan Daniels of the Maine International Trade Center is convinced the U.S. is up to the challenge. “The dollar now has a rival and, despite what everyone thought for years, it’s not the yen. The European Union is going to offer us some very stiff competition, but look at what’s at stake: an instant consumer base of nearly 300 million people. When the other European nations join, there will be a half-billion consumers within a 600-mile radius. Gosh.”

Here’s an interesting aside to the euro story: The country that so far has profitted most from the EMU’s adoption of a common currency is … India. That’s right, Indian computer software engineers, the same U.S.-educated engineers who got rich by being the first to recognize that the Year 2000 computer glitch needed a software fix, are getting even richer, billions richer, by leading the way with euro-conversion software. Opportunity knocked; India was already at the door.

Another aside: Because the euro will prevent individual EMU nations from devaluing currency to discourage imports, American manufacturers may have a huge new market for products other than Levis and Coca-Cola. Maine has a new cargo terminal a full day closer to Europe than anywhere else, yet its potential is hampered by lack of access to rail or modern highways. Meanwhile, state transportation policy seems more concerned with moving tourists than cargo. Opportunity’s knocking in Eastport. Will Augusta answer?