4 Colum. J. Eur. L. 353 (1998)
George A. Bermann. Charles Keller Beekman Professor of Law, Columbia University School of Law.
The preceding papers amply demonstrate that an important step in the progressive integration of the European Union can be a compelling one without being an easy one. The transition to economic and monetary union (EMU) in Europe is precisely such a step. In this brief comment, I hope merely to show that, however powerful may be the case for economic and monetary union, passage to it is both generating institutional misgivings and entailing what could be institutional mistakes.
- The Economic Case for a Common Currency
I begin with the case for economic and monetary union, which I consider to be a very strong one indeed. Not many initiatives remain to be taken in the European Union that serve as many purposes lying so close to the heart of the European enterprise. In the first place, although one frequently reads that the “transaction costs” associated with multiple currencies have been exaggerated, the fact remains that those costs are not negligible and are in any event quite conspicuous. By definition, the more the single market succeeds, the more cross- border transactions there will be, with transaction costs commensurately increasing.
Secondly, however well or poorly they may be held in check, currency fluctuations generate a degree of uncertainty in economic transactions that a truly integrated economy cannot afford and would not tolerate. It is difficult to quantify the overall economic cost of this uncertainty, but it likewise cannot be inconsiderable. Then, too, the coexistence of relatively stronger and weaker national currencies is undesirable from the point of view of the “level playing field” (a consideration that lies at the very heart of the integration enterprise), if only because of the short-term trade advantages that accrue to the. state having the weaker currency. Price discrimination is the inevitable, if unintended, consequence.
No less important is the effect of multiple currencies on market transparency. Quite obviously, this “cost” is no more easily quantifiable than any of the others that I have mentioned, but it too is real. Consumers are clearly dissuaded from purchasing in markets whose currencies they cannot readily evaluate, and they may run the risk of acting inefficiently. I believe that traders too can be dissuaded from doing business in such markets and can thus be led to act inefficiently.
More generally, the more that currency recedes as a factor in the planning of economic transactions, the more market actors of all stripes can attend to other considerations-efficiency, quality, and regulatory superiority, for example–that deserve to be accounted for in such planning. In this respect, a single currency can promote the values of subsidiarity-values with which it is actually seldom seen as having a connection-since actors, if they are not systematically driven by currency considerations, will have easier and fuller access to the different regulatory regimes that subsidiarity allows to develop.
Significantly, none of the arguments I have advanced requires proof that a single currency-like a single passport, flag or national anthem–will strengthen the sense of a common European identity upon which closer political union may in turn be built. If dealing on a daily basis in the same currency with which other Europeans deal contributes to the strengthening of that identity, so much the better. But the case for a common currency does not depend on that.
This is not to suggest that the economic case for a common currency is a wholly and unreservedly positive one. Later papers in this colloquium will doubtless explore its economic risks, such as they are. Mention has already been made of the risk of “asymmetric economic shocks” which can be expected within an economic and monetary union when the underlying macroeconomic conditions are not in fact as closely aligned as they should be. As has been observed, the existence of a common currency excludes any possibility of national currency devaluation, the best-known country-specific remedial measure traditionally relied on in the face of such asymmetric shocks. All that means, however, is that an economic and monetary union must develop surrogate mechanisms for dealing with such shocks-if only in the form of systems of economic aid in favor of adversely affected regions.
