EURO BOUND? May 1, 1998 The NewsHour with Jim Lehrer Transcript

---

The euro moves a step closer to reality this weekend after the European Union announces the eleven nations which qualify for the common currency. Following a background report, Phil Ponce and guests discuss the economic and political significance of the euro.

---

A RealAudio version of this segment is available. NEWSHOUR LINKS: May 1, 1998 A background report on the euro . February 24, 1997 The cultural, political and economic significance of the euro . December 17, 1997 David Gergen interviews John Newhouse, author of Europe Adrift. Browse the NewsHour's coverage of Europe and economic affairs. OUTSIDE LINKS: The European Union.

PHIL PONCE: For more, we're joined by Stephan Richter, president of Transatlantic Futures, a Washington-based global strategy consulting firm. Lourdes Beneria, professor of international development and economics at Cornell University; and Steven Overturf, economics professor at Whittier College in Southern California, whose latest book is called Money and European Union. Welcome all.

Professor Overturf, just so that we're completely clear, the euro will be for these countries what the dollar is within the United States, yes?

STEPHEN OVERTURF, Whittier College: Yes, exactly. And many years ago, of course, the dollar was not the only currency that circulated in the United States, and so in some ways they had to bring all that together, and the same thing is happening in Europe.

PHIL PONCE: So, Professor, eventually there are not going to be any deutsche marks, any lira, any francs, those will simply be gone?

STEPHEN OVERTURF: All those will disappear, and that process will start very quickly here on January 1st of next year. And by the year 2002, really all the literal currencies will be gone into the new currency of the euro.

PHIL PONCE: Late reports, Professor, indicate that the initial value of the euro is going to be set at about $1.10. Does that sound about right?

STEPHEN OVERTURF: That sounds about right. There may be some fluctuation between now and the time it is actually introduced, and, of course, afterwards, there's some possibility of some further turbulence in that market, but that seems about right.

PHIL PONCE: Professor, why are countries doing this? What's the historical push?

The history of the euro.

STEPHEN OVERTURF: Well, that's a wonderful question you asked that because it's very hard, I think to understand this unless you understand the history behind it. I think sometimes because it hasn't been covered that extensively in America, Americans are thinking that this has been pulled out of the air, but it goes all the way back actually to 1952, with the founding of the European coal and steel community, an idea of Jean Monet's, who is called the father of Europe, to try to economically bring the states of Europe together so as to avoid yet a third world war. And then that accelerated into the common market because the coal and steel community work particularly well. And then by the late 60's and early 70's, they tried to go into a monetary union. Now, as it turns out, that failed, but by 1979, they made another at least partial attempt in the European monetary system, and that worked particularly well. Later on, there were some blips along the way, but that set the stage, if you will, for the Maastricht Treaty in 1992, which then is coming to accumulation here in the euro.

PHIL PONCE: But the primary impulse was World War II in the attempt to what, achieve stability, attempt to, what, defuse longstanding rivalries by joining, joining economies?

STEPHEN OVERTURF: Yes. Breaking down the barriers between nation states, between the two wars each individual state had moved into their own realm and created almost little mini fortresses, and that, plus the other nationalistic tendencies, tend to result in World War II. A lot of people after the end of the war thought that maybe people could come together politically, but, again, that's something that didn't happen. So they tried to revert to something that had worked with the Zollverein--we're getting very historical here--in Germany, which was to enter the economic back door into a greater political union. So in many ways all of what we're seeing has as much a political dimension to it as an economic dimension.

PHIL PONCE: Mr. Richter, what--looking at the economic dimension, what's in it for these countries to do this?

Mr. Richter: "..a nice step forward in historic terms to a greater, stronger Europe...."

STEPHAN RICHTER, Transatlantic Futures: Very simple. Just imagine the United States would be split back into six or twelve countries, and you had a California dollar, a Texas dollar, and so on. No chairman of any U.S. company would say that you can run a business on that basis; it's highly inefficient. And so they're trying actually to ramp up, not just to do away with the late effects of the war and it really creates some European integration, but also very much to try and create a business basis that's comparable to the United States. The United States, as everybody around the world knows, is the most powerful country on earth, and I think one of the drivers for some of the countries--the French certainly is--to make sure that Europe will have a brighter future and one of the conditions without which that cannot happen is to have a common currency because that's going to lead to something very interesting. Business structures all over the continent--big banks--big insurance companies--big manufacturing firms--it's going to lead to a lot of shakeout too like we had here in the United States ten years ago. But, anyway, it's a nice step forward in historic terms to a greater, stronger Europe, a more vibrant U.S.--European economy, which also is going to be good for Americans because they have better business partners in Europe than just the small German market, French market. Never mind the Danish or Swedish or Greek or all these other markets--it's going to be one market's much easier for everybody to go into.

PHIL PONCE: A pretty rosy picture, Professor Beneria. Do you see it that way?

LOURDES BENERIA, Cornell University: Well, parts of it, yes, but there will be some losers. To begin with, I think we need to think about the fact that not everybody's going to--even those who will benefit will not benefit equally. Clearly, the larger business--those who have--who trade them have many exchanges between countries are going to be the major beneficiaries. The average European is not going to feel that much of a difference. That's why they have remained much more neutral. The push has really come from business, although I think we should also admit that there has been some political reasons behind it, not just total economic reasons.

PHIL PONCE: As far as average Europeans are concerned, how could they be affected adversely, Professor?

LOURDES BENERIA: Well, I think we should say that they already have. You know, the Maastricht Treaty started the process, the strict rules to be able to a member of the Maastricht club, that is, to be part of the Europe--means that countries will have to keep very much under control government spending, especially deficits, and they were not able to qualify unless they followed the rules, and that's why some of the countries like Greece have not been able to qualify. So it has already been felt. I mean--

PHIL PONCE: Felt in what, unemployment, cutbacks in social spending, is that the sort of thing?

The effects of the euro.

LOURDES BENERIA: It has contributed to the dismantling of the welfare state in Europe but has decreased in government spending, decreased in the amount of social services, especially the lower income groups make more use of, and therefore, it is unequally distributed, how it is--the negative aspects maybe. Also, unemployment, those who are unemployed will likely to suffer for two reasons: one is because unemployment benefits may not be as generous as they were before, and also because there will be less money to create jobs on the part of the public sector. So there may be also, for example, decreases in health--in the health--very generous health and education, housing services that many European countries in different degrees, obviously, depending on which country have--so it's part of the dismantling of this welfare state that has already taken place in Europe, you know, due to globalization, and the information of the euro will contribute to that.

PHIL PONCE: Professor Overturf, how about the dismantling of sovereignty, is that an issue, how much power are these respective countries giving up?

The euro and issues of sovereignty.

STEPHEN OVERTURF: Oh, this is extraordinary. When you think about it, there are very few things that really constitute what a country is or what a state is. That would include defense, raising an army, being able to tax. But one significant thing is issuing your own money and controlling your own money supply so make no mistake, this is very, very exciting. I mean, whether you're for it or against it, it's a really exciting move because it is transferring sovereignty to a higher level among these states by treaty.

PHIL PONCE: Mr. Richter, could this thing fall apart? At some point down the road could a country say forget it, it's not worth it, we're pulling out?

STEPHAN RICHTER: It could, but the important thing to remember is compared to what you said one thing that strikes me, Spain, for example was never a leading light in the European economy. If you look at it right now, Spain stands supreme. It's had a perfect record. Ireland was always a small country. It's doing better. Most of the small countries right now are doing better than the big countries. The small countries have become the leaders of the European process. Germany and France, traditionally seen as the locomotives, are the laggards. This, I think, creates for the first time some interesting competition between the European nations. And that is very important. If the small countries can better the large countries, that I think is good. Now, the other thing, it can fall apart, but, again, what's the choice? What you described so well is what every American has gone through over the last 15 years, and what some Americans are still going through, though unemployment is now at record lows. There is no choice. In a globalizing economy you can't have it both ways. You can't travel all over the globe in airplanes and all that, and you can't have cheap goods from all over the world, and then presume like the Europeans have up to now that you don't need to change. It's equal rights for everybody, for Americans, Europeans, and Asians, and that I think is part of the answer that the Europeans are learning the hard way because they weren't willing, absent a common currency in most of these societies, to learn it individually.

PHIL PONCE: Professor Beneria, one of the things people say is that this is a big step on the road to "the United States of Europe." Do you see it that way?

The United States of Europe?

LOURDES BENERIA: Probably yes. I think many countries see it that way, however, I think that we may have many surprises along the line because we can see how also, you know, regions and all identities that have to do with ethnicity are also growing within Europe. But in many ways they are seen as being part of the larger Europe, so, yes, in this sense, there may be a dismantling of state, but without necessarily giving away the identity of some of the--you know--small ethnic groups that can be found within each country.

PHIL PONCE: Are you saying that the creation of the euro is what, sparking some nationalism?

LOURDES BENERIA: Not of the euro in particular but the unification of these countries. It's not so much the formation of Europe as the globalization of Europe, the globalization.

PHIL PONCE: Professor Overturf, the impact here in the United States, why should people in this country care about the fact that these countries are going towards a single currency?

STEPHEN OVERTURF: Several reasons, actually, if you travel to Europe, to more than one country in Europe, and you know that when you cross the border, you've had to exchange out of one currency into another, and if you looked at the price at which you've had to do that, the commission of the spread on the exchange rate, you'll know that you've been hit pretty hard, and it's just awkward. That will, of course, all be gone for travelers. That's probably not a major thing. On the other hand, if you're a businessman--and you're a business man or woman, and you're doing business in Europe, now there's really no exchange rates between the various countries of the union--at least the 11--it will go forward, and that should mean a much easier way to do business there, at least for the small and medium size. There is potentially a down side, though, for Americans, and that is, as the capital market develops within Europe around the euro, it's very possible that this will become very attractive for bonds and for assets, for stocks, and that might attract some money which originally would go to the dollar. That may mean a slightly higher long-term real interest rate for us. For the person on the street that could be a student loan a little bit higher, a car loan a little bit higher, a mortgage rate a little bit higher.

PHIL PONCE: Mr. Richter, do you agree that the euro has the--at least the potential to rival the dollar as the dominant currency in the world?

STEPHAN RICHTER: It does, but the effects are not just possibly that interest rates here could rise a little because the euro is more attractive to global investors and not everybody who needs to store money anywhere will put it into the dollar, but perhaps in euros, and the U.S. may have to raise interest rates. At the same time, there is a counterbalancing force. In this country we're talking right now a little bit about that where do we put all our money in terms of mutual fund investing and lots of people are looking at Europe, so people are more dubious, will we get the gains here in the U.S. or not, and in Europe perhaps we may get them. There's one important lesson in a historic sense that balances this all to me and fascinates me; it's really between Europe and the United States what we'll learn from each other--was Benjamin Franklin, who said, what's equally true today for the European Union, as we sit here this evening--which was--we shall either hang together, or we shall be hung separately. And he said that 200 years ago, and I think it's equally true, and it's a good indicator for the future of Europe.

PHIL PONCE: Prof. Beneria, a quick response to that.

LOURDES BENERIA: Well, a quick response, yes, I like that--except that I would like to desegregate it. You know, the optimism is more at the macro level, you know, when you think about a country, about United States versus Europe. I like to look at different groups within countries, you know, different social groups. And so I think it's very important to keep in mind that different people benefit differently, and that what we have to learn is to--for those who lose to be compensated because there will be many winners, but there will be also many losers, and social policy is about compensation, and the European model has been pretty good about that, and so many of us are concerned about losing, you know, the old European model and, in fact, making it more like the United States model.

PHIL PONCE: I'm afraid that's where we'll have to leave it. Thank you all very much.

REGIONS TOPICS RECENT PROGRAMS ABOUT US FEEDBACK SUBSCRIPTIONS / FEEDS:

Support the kind of journalism done by the NewsHour...Become a member of your local PBS station.
PBS Online Privacy Policy Copyright ©1996- MacNeil/Lehrer Productions. All Rights Reserved.