Single currency, myriad questions

Think of that favourite display tool of an early generation of marketing managers , the sales chart, then imagine the line that shows monthly sales gently but relentlessly pointing down, punctuated only by the briefest moments of relief. That, in a nutshell, is the story of the euro, launched in January 1999 valued at a heady $1.20 and today worth just over 80 cents. It is not a bright picture. Yet the euro and the monetary union it represents are immensely important, and we, and our students, badly need those handbooks that help us understand what is going on.

The Political Economy of Monetary Union gives a concise review of how we got the euro and the difficulties that exist, or may lie ahead, in holding it together. The authors, Malcolm Levitt and Christopher Lloyd, neatly summarise the economics of the currency in a style that a non-specialist will easily follow. They discuss and delicately weave in the story of its antecedents (the ill - fated 1970s "snake in the tunnel" attempt to build European currency stability).

They describe the intrigue and political horse-trading of the 1990s that was so important in facilitating agreement on this boldest of integration steps. Finally, they probe the problems that remain if the euro is going to be made to work.  Parts of the book, especially those dealing with the institutional aspects, offer a read that is dry but thorough. The rules governing the new arrangements for making monetary policy are clearly set out alongside issues of economic governance and the "democratic deficit".

Throughout the book, the authors make the issues more tangible by contrasting "Euroland" with the United States, a helpful device in teasing out the euro’s underlying problems in relation to the other well-known "single currency".

The crux of the matter is that a Euroland that has a centralised monetary policy but a decentralised fiscal policy, a minuscule central budget, and labour market rigidity may not be able to cope with serious economic shock. Some crunch questions for the euro’s future flow from this. How to get coordination of monetary and fiscal policy? Can the system hold together without a very much larger central budget? How will the currency (and the region) cope when it meets a serious economic downturn and intra - country tensions show through more sharply? What will the euro really do for European integration, especially in light of the European Union’s impending eastward enlargement?

The questions are, of course, unanswered, but they remind us that monetary union is not necessarily the unambiguous step towards further integration that many assume: it can "divide as well as unite". Levitt and Lord’s balanced account of the issues will be a useful supplement to many courses on the economics and politics of European integration. 
 
George Blazyca is director, centre for contemporary European studies, University of Paisley.