A truly historic milestone has been passed in building a more united Europe with the decision by the European Council to launch economic and monetary union from January 1st next. Eleven states, Ireland included, have agreed to abandon their national currencies and to pool monetary sovereignty in an unprecedented experiment of supranational co-operation with many political implications. It is now very much to be hoped that the unseemly row over the governorship of the ECB, stemming largely from French barging and bullying, will not affect the institution's credibility or independence.
The decision to launch EMU concludes some 30 years of economic analysis and political debate. The new euro currency will consolidate a single market of 291 million people among the participating states. It will account for 18 per cent of world output and will be its largest export bloc. When to these figures are added those of Britain, Sweden, Greece and Denmark, which are not to participate in the first wave of membership, and in future years the larger populations of the 11 states with which the EU has commenced accession negotiations, the sheer scale and ambition of the project can be better appreciated. If successful it will have a major impact on international currency markets and will in due course take its place as a roughly equivalent reserve currency with the dollar.
In that case it can be seen truly to represent a rebalancing of economic power after the end of the Cold War. Hence this is indeed high politics and economics. A great deal is at stake for states large and small within the EU system. Much will depend on how effectively the euro's introduction is managed and directed, following the successful weathering of market and public scepticism over the last year that it could be brought to this juncture. Thus it is all the more difficult to understand why the Brussels decisions should have been marred by such a dispute over who is to be the next chairman of the European Central Bank.
While there is little to choose between the personal qualifications and experience of the Dutchman, Mr Wim Duisenberg, who is to be the first incumbent, and the French nominee, Mr Jean-Claude Trichet, who will succeed him some time in 2002, considerations of national pride and diverging policy are clearly raised by the dispute. But it is precisely such features of the European scene that EMU must supercede if it is to be successful. Not surprisingly, therefore, both market and public perceptions have been affected by the suspicion that the ECB's independence might be jeopardised by any attempt to reproduce the sharp Franco-German argument over economic governance within the bank's board and council structure. There will be an ultra-determined effort to head off hostile market reaction or speculation to the compromise reached; it would be very foolish for anyone to underestimate the sheer political will involved in bringing EMU to life. But this row certainly tells us it is not set in stone and will be subject to dynamic evolution.
Ireland enters EMU economically strong and politically confident that it can deliver on reduced transaction costs, low interest rates, price transparency and diminished uncertainty, despite the initial non-participation of the UK. There is much to be resolved about alternative means of economic management, now that sovereignty over interest and exchange rates has been pooled. Budgets will become subject to EU scrutiny and constraints and more flexibility will be needed throughout the economy. These are the consequences of making the transition to a decidedly more advantageous means of conducting policy on the eve of the twenty-first century.