The
Euro at Five
Address by
Ambassador
Dr. Günter Burghardt
Head of Delegation
Delegation of the European Commission to the United States
Conference “The Euro at Five: Ready for a
Global Role?”
Institute for International Economics
Washington, DC
26 February 2004
Ladies and Gentlemen,
I should like first of
all to thank Fred Bergsten and the
Institute for International Economics for organizing this conference.
Fred has been a staunch supporter of the
Euro since the beginning and never failed in his conviction that it
would be a success. For more than a decade in the run-up to the adoption of
the single European currency, not many economists in the US shared this
view. In retrospect, it is clear that Fred’s analyses and insights have been
vindicated and he was right in betting on the success of the Euro.
The introduction of the
Euro has indeed been a major historic event. It marks the achievement of
full integration in the monetary field for twelve Member States of the
European Union. The mere existence of national currencies was the last
barrier to achieving the single European market and the ultimate step in
reaping all of its rewards. The single currency has had real economic
benefits for the economies of the countries which adopted it. For instance,
a preliminary
study by the European Commission indicates that the single currency has
already accelerated trade among the member states that have adopted the
Euro. While
trade within the Euro Area expanded by 14% over the 1999-2002 period,
trade between Euro Area Member States and the other three EU countries
increased by only 9%. I will not dwell here on in any detail on these
economic aspects — you will deal with them extensively throughout today’s
conference, with the help of the most qualified economists.
If the underlying
rationale for Economic and Monetary Union was predominantly economic, the
deepest reason for such a move was profoundly political and aimed at
involving all European citizens in the process of European integration. As
pointed out by former Commission President Jacques Delors, the introduction
of the Euro has created “the perception of an emerging European identity.”
The Euro, a tangible sign of European unity, has become part of daily life
for more than 300 million people and serves as a yard stick for the public
to measure how far the integration process has come in only 50 years.
The biggest ever
enlargement of the European Union will take place on 1 May. Enlargement
from 15 to 25 members will increase its population by 20% (to over 450
million people), while its GDP will grow by 5%. This implies that at the
moment of the enlargement, the prosperity gap will increase by about 20%,
twice as much as the disparities increased when Spain, Portugal and Greece
entered the EU in the 1980s. For the first time in its history, the European
Union will have a slightly greater inequality than the one between the
States of the US. To foster growth so that these disparities may narrow over
time will be a formidable challenge for Europe, a challenge which is bigger
than those we had to face in previous enlargements and which will absorb a
significant amount of the budgetary resources of the Union in the years to
come. But it is a challenge that can produce a very large reward.
Enlargement is in fact
an unprecedented economic opportunity that, economists agree, will bring
significant benefits to both old and new members. It will promote
competition and favor a more efficient allocation of resources within the
European Single Market. The new Member States have performed particularly
well in the last three years: despite the global slowdown, their GDP has
grown at a rate close to 3%. But they still have a large untapped growth
potential. This has been well understood by European, but also American
investors, who have significantly increased their presence in these
countries ahead of their accession, correctly anticipating the economic
opportunities that exist for these countries in an enlarged internal market.
By joining the European
Union, the acceding countries also become members of Economic and Monetary
Union. They are committed to adopting the Euro eventually, and steps are
being taken in that direction. But accession to the EU does not mean
automatic adoption of the Euro. Specific criteria must be met first, as laid
out in the
Maastricht Treaty. The new members will continue on a path of economic
restructuring and economic and policy convergence as part of the process of
getting in shape for the Euro — a process that is guided and encouraged by
the Commission and other EU institutions. I am pretty confident that by the
end of the decade in a number of them the Euro will have replaced the
national currency.
Fundamentally, the
introduction of the Euro is so far the most important example of structured
cooperation inside the European Union. This method allows those countries
which want deeper integration to move forward and it will gain more
prominence within the wider Union we are building. The
draft Constitution presented by the
European Convention last year provides for the development of such a
method of integration. Despite the fact that it has not yet been possible to
conclude negotiations among Member States on a Constitutional Treaty, I
remain optimistic about the chances for the Treaty to be approved within
this year. The Euro, the enlargement and the Constitutional Treaty would
then become the three landmarks of a new phase of European political and
economic integration that enhance stability and prosperity domestically and
strengthen Europe’s voice in the world.
Let me touch briefly on
the main topic of this conference; namely, whether the Euro is ready for a
global role. In the five years the Euro has been in place, it has
established itself as a key currency on the international scene and an
alternative to the Dollar. There are four criteria to assess the
international role of a currency: 1) the share of the Euro in global foreign
reserves; 2) the share of bonds issued in that currency; 3) the share of
demand for money-market instruments denominated in the currency; and 4) the
number of countries using the currency for trade transactions with foreign
partners.
With regard to the
first criterion, the share of the Euro in global foreign exchange reserves
increased from less than 15% in 1999 to almost 19% in 2002 — still a long
way from the Dollar’s share in reserves (about 65% in 2002), but growing
steadily. On the second criterion, following the introduction of the Euro,
there was a surge in Euro-denominated bond and note issues. At the end of
1998, the outstanding amount of bonds and notes denominated in the legacy
currencies of the Euro accounted for barely 28% of world issues, compared to
45% for dollar-denominated bonds and notes. By mid-2003, the gap had become
relatively small: the share of issues in Dollars had fallen to 43%, while
the Euro’s share had increased to 41%. Turning to the third criterion, the
share of demand for money-market instruments denominated in Euro also rose
dramatically, from just over 17% to 46%, overcoming the share of issues in
Dollars, which declined from 58% in 1998 to 30% in mid-2003. Finally, with
regard to the fourth criterion, over 50 countries now operate managed
exchange-rate arrangements that include the Euro as a reference currency,
either in isolation or with other reserve currencies. All four criteria seem
to indicate a strong and increasing confidence in favor of the Euro in its
role as a key international currency.
The introduction of the
single currency has had a fundamental impact on the European financial
sector, as a catalyst for European financial integration and restructuring,
and for expansion of the market itself. The EU is committed to the
completion of a single market in
financial services by 2005, a formidable task but one that we are on our
way to achieving. This adds another area for cooperation in our
transatlantic dialogue. We have already modernized and unified our rules
on prospectuses and created a
single European patent, for example, and we are working toward a “single
passport for investment services” to facilitate investment while protecting
the investor. According to a Commission study, an integrated European
capital market could in the long run raise the level of GDP in the EU by
over 1 percent — a boost our economies could undoubtedly use.
The impact of the Euro
is being felt deep and wide, within the Euro Area and the EU but also
outside Europe’s borders. The growing international role of the Euro,
including its profound impact on the financial sector, makes it highly
worthy of attention on this side of the Atlantic. The Commission is
therefore pleased to support this conference, the first of a number of
conferences and seminars on the Euro the Commission is co-financing around
the US in the first half of this year, and grateful to the Institute for
International Economics for advancing the discussion of the successes and
challenges of the Euro five years after its birth.
I wish you a fruitful day.
