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Talking Sensibly About the Euro

ROME: Another week, another crisis for the euro. This time it is the chairman of the European Central Bank who is under fire. No matter what causes any one crisis, it is now necessary to discuss the euro’s fate without doomsday overtones. Five points must be emphasized:

• The Europe of the eleven euro members is a much more closed economic system than any of its individual member countries. Most of the commercial and financial activities of the eleven takes place within the euro area. Hence, movements in the euro’s exchange rate for any single member country of the Euro-11 are much less important, from the standpoint of both benefits and disadvantages, than movements in currencies outside the euro area are to those countries.

The euro area, indeed, is only slightly more open to outside forces than the United States. The ratio of exports to GDP in the euro area, for example, is about 17%, as opposed to 12% in the US. The average American doesn’t care much about the dollar’s external value, yet the value of the euro seems a question of life and death for Europeans.

• The statute of the European Central Bank declares its objective to be maintenance of stable and low inflation in the middle run. Stabilizing the euro’s exchange rate is not the ECB’s mission. Those who criticize the ECB for not intervening more vigorously in capital markets in defense of the euro either have not read the Maastricht Treaty or have forgotten what it says.