Headline Jan 04, 2015/

''' THE EURO '''

OF ALL THE practical  exercises in politics, economics, finance and accountancy nothing is more complex  -or ever will be-,  

Than launching a new and common currency for a monetary union of countries 

Europe's  single currency is now a sprightly decade-and- a half old. Sceptics had not expected it to live so long, so its rude health is something of a triumph.

In different ways these two books, one by a former journalist for the Financial Times and the other by a former director of the European Central Bank  (ECB) who was also its first chief economist, celebrates this success.

David Marsh's forthcoming book is more gripping, especially on the run-up to the euro's birth. He has a detached,even sceptical tone, whereas Otmar Issing, whose book came out later, is more of a fervent believer.

Mr Marsh's book has extra value because it draws on hundreds of interviews with the bigwigs involved in setting up the euro  (including Mr Issing, whom he interviewed twice) and is built on the foundation of his earlier history of Germany's Bundesbank.

The result is an indispensable guide to monetary union.

The most interesting part of Mr Marsh's tale comes in the early 1990s; not the negotiations before the 1992 Maastricht treaty but the huge strains within Europe's exchange-rate mechanism (ERM):

Which other currencies repeatedly pushed to their floors against the Deutschmark.

In earlier periods the solution would have been devaluation. But countries such as Britain and France fiercely resisted this, partly because they considered, with some reason, that the problem was one of Deutschmark strength, not their own weakness.

In the end France, much helped by the stubbornness of its then treasury director, Jean-Claude Trichet (later the ECB's president), stayed in an ERM with wider trading bands. But Britain (like Italy) was ignominiously forced out.

These countries attitudes to the single currency still owe much to experience. And some tensions inherent in the  ERM  can still be detected in today's euro. The difference is that now they emerge in pressure on bond yields-

And ballooning current-account and budget deficits, rather than in dramatic foreign exchange crises.

Germany was always reluctant to lose the Deutchmark and the Bundesbank. It came round to the euro for two reasons: the enthusiasm of Chancellor Helmut Kohl, especially after German unification-

And the care taken to create the new currency on German (ie, Bundesbank) lines.
The Massstricht criteria, the stability-pact limits on budget and the ECB's extreme independence were all aimed to calm German worries.

Even then, as Mr Issing makes clear, the Bundesbank believed the single currency needed greater political union.    

Mr Issing's book is good on the technicalities of the setting up the ECB and designing its  (mostly successful) monetary policy, even if he is too defensive over its early communication failures.

At one point, he says tartly that  ''a central bank is not established with the primary aim of communication with the public.'' Ironically, given German opposition to the candidacy of Mr Trichet as ECB president:

He has proved a more effective communicator than his Dutch predecessor, Wim Duisenberg.  

It is a further irony that Germany at first suffered under the euro, with slow growth and an embarrassing breach of the stability pact. But now other countries look more vulnerable.

Their hope had been to shackle the Germans via the euro, but now they find themselves at a competitive disadvantage without the option of devaluation. Indeed, these two books suffer from an accident of timing.

Today euro members like Spain, Ireland, Greece and Portugal suddenly find their credit ratings under threat and their bond spreads over Germany's widening sharply.

For all the success of its first 16 years, the immediate  future looks likely to be euro's most testing so far.
With respectful dedication to all the Students of the world studying Politics, Economics, Finance and Accountancy. See Ya all on !WOW!   -the World Students Society Computers-Internet-Wireless:

''' Modernism '''

'''Good Night and God Bless

SAM Daily Times - the Voice of the Voiceless


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