The euro's real revolution

LONDON, Dec. 30 (UPI) -- Within 48 hours, most of Europe will be back to where their great-grandfathers were in that halcyon summer of 1914. It will be possible to board a train in Berlin and potter through Austria and Italy, Franc and Spain and Portugal and back through Belgium and Holland without ever having to show a passport or change one's money.

The advance has been modest. Today's euro is less solid and certainly less attractive than the gold and silver coins of the past. And in these days of heightened terrorism alerts, it would be a bold traveler who did not carry his flimsy European Union passport in its plastic burgundy cover, whatever the European Union's rules on free movement might say. And whereas these freedoms of today's European are restricted to the 12 nations of the eurozone, the ancestor of 1914 could have extended the journey to London in the West and to St Petersburg in the East.

But it would be churlish to deny the magnitude of this new European project. The launch into circulation of 15 billion new banknotes and over 40 billion new coins has been Europe's biggest logistical enterprise since D-Day in 1944. And finally, some 45 years after the Treaty of Rome was signed to bring the European Economic Community to life, the pacified citizens of Europe's traditionally warring tribes have some tangible symbol of their new identity jangling in their pockets.

The economic consequences of the arrival of Europe's new single currency are incalculable. It may or may not kick start the overdue reforms of the sluggish French and German labor markets, ignite an entrepreneurial culture or impose real price competition across a market of 300 million prosperous consumers. It is too soon to tell whether the euro will invigorate Europeans or huddle them behind a currency version of the Maginot Line in the vain hope of preserving their welfare states and jobs from the furious competition of globalization.

But the political consequences of the euro are already plain to see. The tight monetary discipline imposed by the European Central Bank (ECB) has already broken the dominance of center-left governments that used to run 13 of the EU's 15 nations. Italy fell earlier this year, Portugal fell last week, and the Socialists of France and the Social Democrats of Germany are worriedly facing the coming year's elections with unemployment climbing back into double digits.

Germany's election looks likely to coincide with a serious political clash over the euro. Countries whose budget deficits or total debt breach the ECB's tight rules face massive billion-euro fines. But stuck in recession, German government revenues are falling just as the unemployment bills starts to soar. A bigger budget deficit therefore looks inevitable.

Will the German government pay the fines, and offend the electorate in election season? Or will Germany defy the ECB and destroy its credibility while simultaneously forcing a crisis with the rest of the eurozone members?

European central bankers are getting so worried about the implications of this clash that various clever schemes are being canvassed to shuffle budgetary and assessment timetables, at least to delay the row until after the German elections in October.

Ironically, the Germans have nobody to blame but themselves. When the ECB's charter was being drafted in the mid-1990s, Germany insisted that the bank be given these powers to fine profligate governments, slash budget deficits and keep the euro strong. Now the euro is weak, and Germany is the economy causing the problems.

France, Germany and Italy, the big three economies that together account for nearly 80 percent of the eurozone's GDP, are lobbying almost desperately for the Greenspan touch, some sharp interest rate cuts to get their stalled economies moving again. By contrast, the smaller countries like Ireland and Finland are now in trouble because the ECB did not restrain their overheating economies last year with higher interest rates.

These political tensions help explain (along with Europe's sluggish growth) why the markets have sensibly marked down its value from $1.17 at its birth three years ago to $0.90 today. But then the euro was always much more of a political than an economic project, demanded by France as the price of accepting German re-unification after the fall of the Berlin Wall. The euro was then embraced by the others -- with the exception of the skeptical British, Swedes and Danes -- as a political symbol of Europe's integration.

The politics are now coming back to haunt the new euro, and casting it in a dubious light in the very period when the British and Swedish voters are supposed to be seduced into joining the single currency at the referendums they have been promised (Denmark, the one country where the public was asked whether or not they wanted the euro, said "No.")

So, as usual when feeling defensive about the European project, its defenders hark back to that golden summer of 1914 before the civilization of old Europe committed slow suicide in the trenches of the First World War. Today's EU and its uniting single currency, they say, mean that the fractious European tribes will never revert to their endemic civil wars. Almost certainly they are right, even if the euro looks like a risky way to ensure it.