BRUSSELS, Jan. 30 (UPI) -- European governments are rapidly waking up to the fact that their new single currency has been introduced with some rather shaky foundations.
Just weeks after the hype over the smooth launch of the new notes and coins died down, the new EU Spanish presidency is calling on EU leaders to finally agree on some of the long-delayed reforms that will make a reality of the EU single market when they meet in Barcelona in just over a month's times.
Take a salutary look at Greece, the poorest state in the euro zone by a long way. In a speech in Athens on Tuesday, the national development minister, Akis Tsochatzopoulos, spelled out a shopping list of the reforms, which the country's economy will have to undertake if it stands a chance of living with the chill winds of competition sweeping through Europe. And it is small Greek businesses that are being asked to improve their performance.
At the top of the EU agenda has to be the setting of a date for a full liberalization of the EU energy market and progress on making Germany's labor markets more flexible. But with elections due in the euro zone's biggest economy as well as in the second biggest, such major reforms seem highly unlikely.
Action on a EU patent and EU stock market reforms are also stalled because of disagreements between member states and rows between the EU Commission and the Parliament.
EU politicians had been full of ideas that the very introduction of the shiny new coins and crisp new notes by itself would be enough to give the persistently weak euro a boost. That has not happened and it has not happened because the roots of the euro's weakness are deep and fundamental.
But after a one-day wonder, the markets have looked again at the euro's fundamentals and driven it down still further from its year-end lows. Some highly discreet intervention by Europe's central banks to hold the unit just above the 88 U.S. cent level (remember, its 1999 start level of 1.17 U.S. dollars) failed to hold the flood and the currency has now been pushed back below the 87 cent level. Many traders believe it could soon be looking again at its all-time low of 83 cents before too long.
Federal Reserve Chairman Alan Greenspan has recently explained the weakness of the new European currency as based on the lack of flexibility in European labor markets. European Central Bank President Wim Duisenberg has publicly endorsed his criticism.
But the central bankers have yet to win over the minds of European politicians who continue to insist that, while it can be fine tuned, there can be no wholesale dumping of Europe's social model.
In a keynote address in Athens, EU Social Affairs and Employment Commissioner Anna Diamantopolou told journalists "we will not demote the social model." Rather than seeing it as a hindrance to euro zone economic well-being, EU politicians see the euro it as indispensable to social peace in a single currency bloc which still has 12 different governments.
Reforming other areas of the euro zone's economic life will also be tough. While the EU Parliament has agreed a kind of peace with the EU Commission in their long-running dispute with the Commission over stock market reform, new proposals from the Commission threaten to shut down large parts of the City of London.
The EU prospectus directive could burden London's small business AIM market with so much extra paperwork that it could be forced to close its doors, Labor MEP Peter Skinner told UPI. And that is despite the Commission's stated commitment to easing small companies' access to capital. The head of the Commission's Internal Market division has even told the EU Parliament that he will not consider exempting small companies from the new onerous filing requirements.
EU Commission President Romano Prodi, still hungry for some notable political success, is still hoping that France can be encouraged to set a date for energy market liberalization. In an election year, hopes for that seem pretty dim.
This stalemate over structural reform combined with the tough monetary policy of the new European Central Bank have many commentators wondering if Europe might be the next major economy to go down the Japan route to economic stagnation.
