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Time to Wait on the Euro

On September 14, Swedish voters will vote on whether to join the Euro. Today, a majority of Swedes appear likely to vote no. To advocates of the Euro, this is a mystery. Isn't the Euro a success, as marked by the currency's increasing strength against the dollar? Why shouldn't Sweden be part of that success story?

No one ever doubted that the Euro would gain acceptance as a currency - in economists' jargon, that the Euro would become an important "medium of exchange," or even a good "store of value." But currencies are not ends in themselves; they are means - to stronger, more stable growth.

Whether the Euro - with its associated institutions, including an independent European Central Bank (ECB) which focuses on inflation - is "good" or "bad" should be judged by economic performance - whether it leads to faster, steadier growth. Judged on those terms, the best that can be said for the Euro is that the jury remains out. The worse that can be said is that the Euro has failed its first test.

Growth in Euroland since the introduction of the Euro four-and-a-half years ago has been dismal, and immediate prospects look little better. Yet the Euro was supposed to enhance growth by lowering interest rates and stimulating investment. While it may have done so in a few countries, it has not done so in Europe as a whole.