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European Union recommends countries for new single currency

coins
Designs for the new euro coins are unveiled   

In This Story:

March 25, 1998
Web posted at: 6:52 a.m. EST (1152 GMT)

BRUSSELS, Belgium (CNN) -- The European Commission on Wednesday published its recommendations of the countries that would participate in the euro, the new single currency that is one of the most important economic developments in post-war Europe.

The commission tapped Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain to join in European Monetary Union and participate in the euro, when it is launched Jan. 1.

Britain, Denmark and Sweden don't want in, at least not now.

The only member of the 15-nation EU left out is Greece, which never stood a chance because of its shaky economic performance.

"We are at the end of an historic process," Commission President Jacques Santer said after making the announcement. "It has been a long path, a path full of successes and failures."

The euro becomes a full-fledged currency for commercial transactions at the beginning of next year. New banknotes and coins start circulating three years later, when Europe's many different currencies start to disappear. Europeans hope their single currency will soon rival the U.S. dollar and the Japanese yen.

de Silguy
de Silguy   

The official opinion of the Commission, the EU's executive body, is that the nominees have met, or are have come close enough, to the economic criteria for participating in the single currency.

"In the report of the commission we can prove that the member states we propose to participate ... have strictly respected the conditions and today there is no reason to delay the launching of the euro," said European Commissioner Yves-Thibault de Silguy.

Italy, which teetered on the edge of acceptability because of its huge national debt, makes the grade more because it would be unthinkable to leave out a founder EU member than because of confidence in its economy.

An economic revolution in the making

The single European currency is much more than an economic exercise. It is a political act that may do more than anything else in the previous 46 years of the organization to unify the continent, or at least the first 11 countries to join.

When the euro is adopted, it will revolutionize the way Europe does business and create a global currency that could rival the American dollar as reserve holdings in the vaults of the world.

It will also, at least in the beginning, cause confusion and lead to pricing problems. People will lose their terms of reference, their sense of what things are worth.

Experts believe international currency exchange costs will be eliminated, administration will be simplified, companies should improve cash management, and consumers will really be able to spot a bargain when they see one.

Final decision in May

Printing press

Also Wednesday, the European Monetary Institute in Frankfurt, Germany released its report assessing the economies of the EU nations. The EMI will be transformed into the European Central Bank after monetary union.

"A Europe that can do something like this is a Europe that can win, a Europe that can move into the 21st century with confidence," said Santer.

The final decision on who's in and who's out will be made at an EU summit May 2 in Brussels.

That summit also will set the rates at which EU currencies will be exchanged during the transition leading to the introduction of euro banknotes and coins Jan. 1, 2002.

According to a draft document approved by EU finance ministers, the rates will be based on the central rates in the grid now used to limit fluctuations in EU currency values.

Strict economic criteria

Entry into the single currency was supposed to be determined by strict economic criteria. Key ones are a budget deficit of less than 3 percent of gross domestic product at the end of 1997 and a government debt not exceeding 60 percent of GDP, or approaching that level at a satisfactory pace.

Everybody but Greece slips past the deficit figure. But Italy's debt is 121.6 percent of GDP, more than double the acceptable level and a figure that worries some EU members, particularly Germany.

Hegarty
Hegarty   

And Rome's 2.7 percent deficit figure was possible only because of a one-time income tax levy. Otherwise, the figure would have been 3.3 percent of GDP.

Belgium, too, has an enormous debt at 122.2 percent of GDP. But in real terms, it is much smaller than Italy's. Many fear that though Italy comes in close on the criteria, it won't be able to sustain the effort.

John Hegarty, secretary general of the Federation of European Accountants, said there are "clear indications from the major Swedish multinationals that they wish to operate in the euro from 1999 onwards and the Swedish government has said it will do everything to enable them to do it. We are seeing many British multinationals reaching the same conclusion."

Brussels Bureau Chief Patricia Kelly and The Associated Press contributed to this report.

 
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