The liberalization of trade and investment implied by the Single European Act was greatly inspired by a British deregulatory vision. At the time, Delors presented the introduction of a single currency as a way to complement or complete the Single Market.

European politicians who insisted on introducing the euro in 1999 ignored the warnings of economists who predicted that a single currency for all of Europe would create serious problems. The euro s advocates were focused on the goal of European political integration, and saw the single currency as part of the process of creating a sense of political community in Europe.

CAMBRIDGE The French government just doesn t seem to understand the real implications of the euro, the single currency that France shares with 16 other European Union countries.

Jacques Delors, one of its architects, once called the single currency the jewel in Europe s crown. Abandoning it would be tantamount to declaring the entire European integration project a failure.

(c) TRANSITION TO A SINGLE CURRENCY SYSTEM (IDB.29 1 Add.1)

They cite the southern European countries chronic external deficits. They highlight the eurozone s institutional deficits a single currency and a central bank but none of the other elements of a well functioning monetary union.

But this reflects a deep misunderstanding of what monetary union means. Monetary union is possible only because of the substantial integration already achieved among European Union countries and sharing a single currency deepens that integration.

A single rulebook for financial services is being put in place for the single market. Building on this, a single European banking supervision authority would open the way to direct recapitalization of banks through the European Stability Mechanism, as well as to common deposit insurance and a single resolution framework.

The great virtue of capitalism is that it adapts to ruinous conditions and even finds ways of turning them to advantage. The United States in the mid nineteenth century was badly suited for a single currency and a single economic structure, as evidenced by the Civil War, which was provoked as much by single currency tensions as by moral abhorrence to slavery.

But the key argument made by European officials and other defenders of the euro has been that, because a single currency works well in the United States, it should also work well in Europe. After all, both are large, continental, and diverse economies.

In the early 1990 s, policymakers, market participants, and economists alike simply assumed that the European Community s 1992 program the legislative framework for the single market, and thus for a single capital market would create a new reality, within which the single currency would work its magic. From this followed an official obligation to treat all types of risk in the monetary union bank risk or government risk as identical.

Third, Greece s eurozone partners wield a massive stick that is typically absent in sovereign debt negotiations. If Greece does not accept the conditions imposed on it to maintain its membership in the single currency, it risks being thrown out of the European Union altogether.

Why, then, is the United States able to operate with a single currency, despite major differences among its 50 states? There are three key economic conditions none of which exists in Europe that allow the diverse US states to operate with a single currency labor mobility, wage flexibility, and a central fiscal authority.

The European treaties state unequivocally that euro membership is irreversible unless a country decides to exit not just from the single currency but from the entire EU. That is also the political message that EU governments want to instill in their own citizens and financial investors.

But do not misjudge us the negotiations are about the arrangements, not about the final outcome. There is sufficient political will in the EU to do whatever is necessary to protect the euro, because the future of the single currency will determine that of European integration.

14 European Union, Legislative Acts and Other Instruments, Regulation of the European Parliament and of the Council laying down the framework for the creation of the Single European Sky.

But many other single currency areas, including the US, display similar divergence. It should also be obvious that, in the absence of currency markets to act as a valve for economic and financial pressures, economic volatility may increase.

Unless and until US consumption patterns change or a rebounding dollar increases oil production, Americans will bear the brunt of single currency oil pricing.

Eurozone leaders must now aim to preserve not only the single currency, but also the gains from financial integration in Europe. No region of the world has benefited more from cross border banking, yet these achievements are now at risk and with them the European bank groups themselves.

British officials are also deeply concerned about measures that would oblige clearinghouses that transact their business primarily in euros to be located within the single currency area. Indeed, the British government was already taking the European Central Bank to court to challenge that policy before the treaty veto.

The current turmoil eventually will lead smaller European countries to look for ways to tie themselves much more closely to the euro. That is what happened in the 1970 s, during the original wave of currency turmoil the Scandinavians and the Swiss negotiated to associate themselves with a European currency regime.

Why would anyone, especially a European, want to kill a program that so far has helped to save the common currency?

According to most economists and political commentators, the latest Greek bailout was little more than an analgesic. It will dull the pain for a short period, but the euro s deep seated problems will metastasize, with a dismal prognosis for the single currency and perhaps even the European Union as a whole.

The single currency was conceived as an answer to the upheavals of the postwar period double digit inflation, high unemployment, and speculative attacks on the pound, the lira, and the French franc. It was the crisis of the European Monetary System that drove the euro s launch on January 1, 1999.

The European single currency has been a major success, but it remains a work in progress. A decade after the euro s introduction, we must follow the example of its founders and turn crisis into opportunity by uniting in a spirit of cooperation and ambition and thereby reinforce the EMU s foundations.

BRUSSELS Two lessons have emerged from Europe s financial crisis. First, there is no substitute for timely and coordinated action when the single currency is under pressure.

Critics of European monetary integration often point out that, in the absence of political union, monetary union is doomed to fail. I agree with the critics conclusion, but not with their premise, for the success of the single currency so far has been due precisely to the political commitments of the Union s member countries.

Before the advent of the euro, there were many fiscal crises in individual nation states in southern Europe, which produced waves of high inflation. But, with the single currency in place, the road to solving a fiscal crisis through inflation has been closed, as the European Central Bank (ECB) now stands watch over monetary policy.

On the surface, Europe s current crisis, which some people predict will tear apart the European Union, is financial. Jacques Delors, one of the architects of the euro, now claims that his idea for a single currency was good, but that its execution was flawed, because the weaker countries were allowed to borrow too much.

In fact, East Asian countries are unlikely to move toward a regional fixed exchange rate system or a monetary union with a single currency in the immediate future, owing to the region s great diversity in terms of economic and political conditions. Perhaps, in a few decades, the region s countries will develop institutions to promote financial integration, such as a single bank supervisory agency of the type that the European Union is now creating.

One of the possibilities raised in the discussions on monetary union in the early 1990 s was that a common currency might not mean a single currency. That possibility is not just a theoretical construct in fringe debates two decades ago it is a real historical alternative.

BRUSSELS A key question confronts the four presidents of Europe s major institutions (the European Commission, the European Council, the European Central Bank, and the Eurogroup) as they prepare their report on how to reform the common currency Does the eurozone need its own budget?

(ii) Upon the insolvency or other default by a party, the termination of all outstanding transactions at their replacement or fair market values, conversion of such sums into a single currency and netting into a single payment by one party to the other or

On 11 December 2003, the Joint Conciliation Committee of the European Parliament and the Council approved the joint text of the framework regulation for the creation of the Single European Sky.

The monetary union s rationale, as many have noted, was always more political than economic. For precisely that reason, it may well be too early to write off the single currency.

That information, as well as any significant developments with respect to the single currency system (IDB.28 Dec.5), will be updated in a document submitted to the present session.

The same applies to extensive government borrowing from abroad, to currency boards, even to currency unions. The creation of the euro is nothing but an extreme form of commitment European governments tried to lash themselves to the German mast of fiscal discipline.

Over time, according to this view, Europe could build the institutions needed to complement these policies. It could create a single bank supervisor, enhance the European Commission s powers, or create a European Treasury.

But the credit crisis in Europe, and the weakness of eurozone banks, may be even more important. The persistent unemployment differentials within the eurozone are yet another reflection of the adverse effect of imposing a single currency and a single monetary policy on a heterogeneous group of countries.

Europe today has a common currency and the European Central Bank (ECB), which have proven to be bulwarks in defending monetary stability during the financial crisis. Any weakening of these two institutions would cause severe damage to common European interests.

There have, of course, been many examples in history in which currency unions or single currency states have broken up. Although there are technical and legal reasons why such a split would be harder for an EMU country, there seems little doubt that a country could withdraw if it really wanted to.

It is now clear to all that Blair is fundamentally opposed to the idea of a more politically integrated Europe. Not only has he kept Britain out of the single European currency over the past four years, he made it clear during the election campaign that he does not expect the UK to join the Euro during the next five years either.

By reducing transaction costs and removing exchange rate uncertainty, the single European currency was expected to lead to fully integrated product and financial markets. This, in turn, would bring greater gains from trade, stronger competition, larger cross border capital flows, lower borrowing costs, and more opportunities for sharing risk, all of which were expected ultimately to boost investment and productivity.

Moreover, there is now a consensus that the 17 eurozone countries need a banking union to accompany their common currency. The European Commission has proposed a single rulebook for banks capital requirements mutual support between national deposit guarantee schemes and Europe wide rules for resolving failing banks that place the main burden on bank shareholders and creditors, not on taxpayers.

France s response to the tension between preserving the European project (equated with the single currency) and avoiding a chronically depressed economy will be to put off the day of reckoning for as long as possible. This dead end strategy will feature vain attempts to game Germany and desperate economic expedients, such as the essentially coercive capture of domestic savings to finance government debt.