THE EURO AS A STABILIZER IN THE INTERNATIONAL ECONOMIC SYSTEM THE EURO AS A STABILIZER IN THEINTERNATIONAL ECONOMIC SYSTEM Edited by Robert Mundell and Armand Clesse SPRINGER SCIENCE+BUSINESS MEDIA, LLC Library of Congress Cataioging-in-Publication Data The Euro as a stabilizer in the international economic systemledited by Robert Mundell and Armand Clesse. p.cm. Includes bibliographical references. ISBN 978-1-4613-7007-9 ISBN 978-1-4615-4457-9 (eBook) DOI 10.1007/978-1-4615-4457-9 .I.Euro. 2.Monetary poIicy--European Union countries. 3.Intemational finance.1. Mundell, Robert A. II. Clesse, Armand. HG925 .E8678 2000 332.4'94--dc21 00-020396 Copyright © 2000 Springer Science+Business Media New York. Second Printing 2001. Originally published by K1uwer Academic Publishers, New York in 2000 Softcover reprint of the hardcover 1st edition 2000 Ali rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photo­ copying, recording, or otherwise, without the prior written permission of the publisher, Springer Science+Business Media, LLC. Printed on acid-free paper. To Charles P. Kindleberger and Pierre Werner, pioneers in the theory and practice ofthe European and international economic and monetary system Contents Contributors XI Preface xv Acknowledgments XVll Introduction XIX PART I: THE VIABILITY OF THE EURO 1. ANew Bi-Polarity? 3 Charles P. Kindleberger 2. The Theoretical and Historical Perspectives on 21 the Emergence of the Euro Robert Skidelsky and Kalin Nikolov 3. External Relations of the Euro Area 35 C. Randall Henning 4. The International Political Implications of the 47 Euro Richard Rosecrance 5. The Euro and the Stability of the International 57 Monetary System Robert Mundell PART II: MANAGEMENT OF THE EURO 6. The Euro and Its Consequences for Global 87 Capital Markets Norbert Walter viii Contents 7. Impact of the Euro on Members and Non- 93 Members Jeffrey A. Frankel 8. Exchange Rate Policy-Making in the Euro Area: 111 Lessons From Trade? Klaus Gunter Deutsch 9. Reinforcing European Integration to Promote the 135 Euro: A Range of Policy Options Pierre Maillet 10. Currency Crises and Capital Controls in 157 Emerging Countries: The Case of the African CFA Franc and Its Euro Future Emil-Maria Claassen PART III: THE EURO IN THE INTERNATIONAL ECONOMY 11. Key Currencies After the Euro 177 Richard N. Cooper 12. The Political Economy of the Euro as an 203 International Currency Jeffry A. Frieden 13. The Prospect for Global Monetary Bilingualism 215 Gerhard Michael Ambrosi 14. The Euro and the Outsiders: The Case of the 231 Swiss Franc Jorg Baumberger 15. The Euro and the Dollar: Currency Competition, 251 Competitiveness and Policy Coordination Christian de Boissieu Contents ix 16. The Impact of the Euro on the International 261 Stability: A Chinese Perspective MingqiXu PART IV: CONFERENCE SESSIONS 271 Session 1: Monetary Leadership and Economic 273 Stability: The Lessons of the Pound and the Dollar Session 2: Monetary Leadership and Economic 291 Stability in a Globalizing World Session 3: The Emergence of the Euro and Its 309 Future Position vis-a-vis Other Leading Currencies Session 4: The Impact of the Euro on International 335 Stability Session 5: The Institutional Implications of the 359 Euro Session 6: What Should Be the Euro's 375 International Role? PART V: KEYNOTE SESSION 391 Conference Participants 433 Pictures Taken at the Conference 437 Index of Contributors 441 Contributors (professional positions at the time of the conference) Gerhard Michael Ambrosi is Professor of European Economic Policy at the University of Trier, Germany. His publications include SystemtransJormation und Zahlungsunion [Systemic Transformation and Payments Union], Pfaffenweiler, 1993. He is publishing 'Economic Policy Coordination and the Euro', in European Integration and the Euro, Brussels (Euro Institute), in November 1999. Jorg Baumberger is Professor of Economics at the University of St. Gallen, Switzerland, where he teaches public finance and public economics, financial intermediation and real estate economics. His latest publication is Real Estate and Property, Geneva, 1999. He is currently working on a book on the economics of real estate markets. Christian de Boissieu is Professor of Economics at the University of Paris-I (Pantheon-Sorbonne). Consultant to the World Bank and to the European Commission, he is also a member of the Council of Economic Analysis created by the French Prime Minister Lionel Jospin in 1997. His recent publications include Les mutations de I 'economie Jranfaise, Paris, 1997, and Monnaie et Economie, Paris, 1998. Emil-Maria Claassen holds the Chair of International Economics at the University of Paris-Dauphine. Previously he taught at the Free University of Berlin from 1989 to 1991. His work for the World Bank, the UN and the IMF has focused on macroeconomic issues like the impact of financial liberalization on stabilization policies. His most recent publication is Global Monetary EconomiCS, Oxford, 1997. Richard N. Cooper is the Maurits C. Boas Professor of International Economics at Harvard University. He has served on several occasions in the US Government, most recently as Chairman of the National Intelligence Council. His recent writings include 'Should Capital Controls Be Banished?' (Brookings Papers on Economic Activity, no. 1, 1999) and Exchange Rate Choices for the Federal Reserve Bank of Boston. X11 Contributors Klaus Giinter Deutsch is a senior economist at the Division of Economic and Banking Policy, European Integration, Deutsche Bank Research. He has written on trade policy-making in Europe, EMU, various G-7 issues, banking and capital markets, corporate governance and pension issues. Jeffrey A. Frankel is a member of the Council of Economic Advisers at the Executive Office of the President, Washington, D.C. In 1988 and 1989, he was a Visiting Professor of Public Policy at Harvard University. His most recent publications include Regional Trading Blocs in the World EconomiC System, Washington, D.C., 1997, and (with R. Caves and R. Jones) World Trade and Payments: An Introduction (8th ed.), New York, 1999. Jeffry A. Frieden is Professor of Government at Harvard University. He specializes in the politics of international monetary and financial relations. He is the co-editor (with B. Eichengreen) of Forging an Integrated Europe, Michigan, 1998, and (with D. Gros and E. Jones) of The New Political Economy ofEMU, Oxford, 1998. C. Randall Henning is Associate Professor at the School of International Service of American University and Visiting Fellow at the Institute for International Economics, Washington, D.C. His publications include Cooperating with Europe's Monetary Union, Washington D.C., 1997, and Transatlantic Perspectives on the Euro, Washington, D.C., forthcoming. Charles P. Kindleberger is the Ford International Professor of Economics, emer., at the Massachusetts Institute of Technology. His numerous publications include The World in Depression, 1929-1939, Berkeley, 1973, A Financial History of Western Europe, New York, 1984, and World Economic Primacy: 1500-1990, Oxford, 1996. Pierre Maillet is Professor of Economics, emer., and a honorary Director General of the European Commission. Between 1973 and 1991, he held the Jean Monnet Chair at the University of Lille 1 in France. He is the co-author (with D. Velo) of L 'Europe a geometrie variable, Paris, 1994, and (with W. Kosters) of Une Europe plus favorable a l'emploi, Paris, 1996. Robert Mundell is the C. Lowell Harriss Professor of Economics at Columbia University, New York. The author of numerous articles and several books, he is known for his contributions to the theory of optimum currency areas, international macroeconomic equilibrium, supply-side economics and studies in the theory and history of the international monetary system. Contributors xiii Kalin Nikolov is a Research Officer at the Center for Post-Collective Studies at The Social Market Foundation in London. He published in 1999 Russia: the 1998 crisis and beyond. Richard Rosecrance is Professor at the University of California, Los Angeles, and Director of the Center for International Relations at UCLA. His publications include America's Economic Resurgence: A Bold New Strategy, New York, 1990. He is currently working on The Rise of the Virtual State: Wealth and Power in the Coming Century. Robert Skidelsky is Professor of Political Economy at Warwick University in the UK and Chairman of The Social Market Foundation in London. His publications include The road from serfdom: the economic and political consequences of the end of communism, New York, 1996, and a biography of John Maynard Keynes. Nobert Walter has been Chief Economist at the Deutsche Bank Group since 1992. He is the Managing Director of Deutsche Bank Research, covering a wide spectrum of issues ranging from country rating to company analysis. He is the author of On the New Wealth ofthe Nation, Washington, D.C., 1993. Mingqi Xu is a Research Professor at the Shanghai Academy of Social Sciences and an Assistant Director of the Institute of World Economy at SASS. He is also the editor in chief of the Journal of Social Sciences and of Shanghai Academy ofSocial Sciences Quarterly. His most recent publication is Contemporary World Economy and Politics. Preface The introduction of the euro was an important event for the world economy and the international political system. For the first time in history, a substantial group of