Magazine article Business Credit

Europe 1992 and Beyond

Magazine article Business Credit

Europe 1992 and Beyond

Article excerpt

As we near January 1993, many of the unification measures envisioned for the European Community (EC) were scheduled to come to fruition. To be fair, many of those measures have been enacted, but recently, we have been reminded that the EC is only part of a much larger Europe. With respect to the future of the EC, much remains to be seen.

What has changed, then, over the last year to make this so? As predicted, the shape of the continent of Europe has certainly changed--and not always for the better. The dreadful strife that currently afflicts Bosnia and other Balkan countries represents the latest in a string of local conflicts and carries with it an ever present threat of spilling over into other parts of Europe, even into the EC countries.

But much has changed too within the 12 countries that make up the EC. Former British Prime Minister Margaret Thatcher, the champion of hands-off-our-sovereignty, has been replaced not just by John Major in the U.K., but by statesmen in other EC countries who had remained relatively mute on the subject during her premiership. Now countries other than Britain are questioning how far political union should be allowed to go.

There is currently much uncertainty in Europe. Will the latest conference on Yugoslavia succeed and peace be restored to Bosnia and the other dismembered republics? Should we re-align the currencies of the EMS (European Monetary System) with the British pound sterling, the Italian lira, and the French franc all bouncing along their permitted lower exchange rate levels against the other currencies? Should we affirm the Maastricht Treaty with the French only approving it by the narrowist of margins?

The Maastricht Treaty

Although the terms of the Maastricht Treaty were agreed to in December 1991, it remains to be ratified by the governments of the 12 EC nations. The treaty provides for the progressive political and monetary union of those countries, and in effect, will update the original Treaty of Rome. To date, referenda have been held in Denmark and the Republic of Ireland, with Denmark voting "no" and Ireland "yes" to the treaty. The crucial referendum on the same subject in France was expected to be the acid test; however, a weak "yes" still leaves matters unresolved.

Central to the current uncertainty is the question of monetary union. The Maastricht Treaty provides for this to be achieved in defined stages, the third and final stage to begin by January 1999 with the establishment of a European Central Bank.

Which of the 12 countries it will be able to exercise powers over, however, depends upon which of those countries qualify for entry into the third stage. A variety of conditions known as the "convergence criteria" have to be met in regard to such matters as price stability, budgetary situation, and exchange rate and interest rate consistency. By the end of 1996, the European Council must decide whether a majority of the member states fulfill the necessary conditions for adoption of a single currency and whether it is appropriate for the EC to enter the third stage. Then, by July 1998, the Council must confirm which member states are ready for a single currency.

Therefore, not all members of the EC will necessarily enter into a full monetary union. Further, in the case of the U.K. and Denmark, there are opt-out clauses which allow exemption for those countries even if they meet the convergence criteria.

More and more, the countries of the EC are displaying a remarkable affection towards their own national currencies. The Germans seem reluctant now to lose their deutsche mark, which has long been the stalwart of European currencies, and is now under pressure to re-value as a result of economic problems inevitable following the re-unification of Germany.

Neither would many of the French want to lose their franc, as evidenced in the September referendum. These factors will serve to postpone the advent of European Monetary Union (EMU), cause exchange rates to become more volatile, and indicate the future Europe will be far less political in the nature of its union. …

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