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Market Newsletter : Europe Wonders: Buddy, Can You Spare an Ecu? : That stands for European Currency Unit, which is what the 12-nation European Community will be using if plans go forward for a unified currency.


BRUSSELS — You might not know it to listen to British Prime Minister Margaret Thatcher. But the 12-nation European Community, of which Britain is but one, is roaring full throttle toward replacing its 12 currencies with one. And Britain, unless it wants to be left at the station, will have to climb on board sooner or later.

A single European currency, at least in principle, is good news almost all around. For the United States, it would relieve tourists of the need to wrestle with the different values of the British pound, the German mark, the French franc and the other nine currencies. Instead, they would have to worry only about one kind of money--now ingloriously labeled the Ecu, for European currency unit, and worth about $1.38.

And on a more important level, a single currency would make it easier for businesses from all countries--not only European but also American and others of foreign origin--to conduct their affairs in Europe. "Americans," says Christopher Johnson, chief economist of London's Lloyds Bank, "should welcome it."

But there might be some losers as well. The German mark already dominates Europe, and a common currency could only enhance the Germans' economic might. And at least in terms of pure political power, the Germans' gain would be the other 11 European nations' loss. . . .

Setting a Timetable

It will be years before Europe abandons its pounds, marks and francs. However, the single-currency train is firmly on the tracks.

Europe can have a single currency only if it has a single central bank responsible for printing the stuff. And the heads of government of 11 of the EC nations, leaving Thatcher in their dust, declared during a meeting in Rome on Oct. 27 that the community should do just that. The central bank, dubbed EuroFed after America's Federal Reserve Bank, is to open its doors on Jan. 1, 1994.

Ultimately, when a single currency replaces the moneys of the 12 EC nations, the EuroFed will manage it. By controlling how much money is in circulation, it will hold considerable sway over everything from the inflation rate in Italy to the mortgage interest rate in Denmark.

"The monetary institution's primary task," according to the communique issued at the Rome meeting, "will be to maintain price stability."

In other words, the EuroFed will try to restrain inflation by holding down the growth of the European money supply. If Portugal or Greece, for example, wanted to stimulate a sagging national economy by injecting a large infusion of cash into circulation, it would be out of luck.

But at the outset, as of Jan. 1, 1994, the EuroFed will have to coexist peacefully with the central banks of the 12 EC nations. Its job will then be merely to "coordinate" the monetary policies of the 12 national banks.

When the EuroFed will take full charge and the 12 national currencies become one has deliberately been left unclear. The heads of government who met in Rome gave the EC governments until Jan. 1, 1997, to decide whether to create a common currency under the EuroFed's management. The actual date for the final plunge was left wide open. . . .

The Thatcher Factor

To Thatcher, the issue posed by a European currency is nothing less than her island nation's continuing ability to determine its own destiny. Three days after the Rome summit, she appeared before Parliament and passionately defended her refusal to abandon the British pound sterling.

"If you hand over your sterling," she thundered, "you hand over the powers of this Parliament to Europe."

Even her own political allies blanched. Geoffrey Howe, the deputy prime minister and last remaining member of Thatcher's original 1979 Cabinet, resigned from the government in protest. Michael Heseltine, Thatcher's former defense secretary, denounced her European policy in a letter to his parliamentary constituents.

But Johnson, the Lloyds Bank economist, expects Thatcher's bite to fall short of her bark. "Mrs. Thatcher is putting up a strong rear-guard action," he said. "But ultimately, Britain will have no choice other than to go along."

Before the Rome summit, nearly everyone expected the European leaders to put off the issue of monetary union until their next get-together in December. But Italian Prime Minister Giulio Andreotti decided to press the issue right away.

"Mrs. Thatcher was taken unawares," Johnson said. "She was outmaneuvered by the Italians, and she didn't like it. . . . "

A Matter of Convergence

Karl Otto Poehl, head of the Bundesbank, the German central bank, had also harbored doubts about rushing headlong toward a single currency. Poehl had warned that a common monetary policy should not be imposed on nations with very different economic conditions.

Germany's traditionally tight-fisted monetary policy, he said, keeps prices steady at home, but it might throw the economy of the weaker EC nations into deep recession. A single currency, he argued, should proceed only after the 12 nations achieved a substantial degree of economic "convergence."

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