Squabbling Doesn't Bode Well for the Euro

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In case you missed the weekend

report from traveling

TSC

reporter Peter Eavis, the French have won big time on control of the

European Monetary Union

. The quote of the day has appeared on

Reuters

:

Jose-Marie Gil Robes

, president of the

European Parliament

, compared the deal for the

European Central Bank

president to watching "the birth of a deformed child."

The deal is that the Dutchman,

Wim Duisenberg

, will get an eight-year presidential term. Then he will voluntarily retire after four years and surrender control to the

French Central Bank

chief,

Jean-Claude Trichet

. The exact date is not defined, but the Europeans were told it will be soon after the introduction of the notes and coins in 2002. Then Trichet will start a fresh eight-year term. As if that isn't enough, the French also secured the appointment, for four years, of

Christian Noyer

as vice president of the ECB. I wonder if all these Frenchmen will like living in Frankfurt.

In the middle of all the squabbling, it was reported that

Helmut Kohl

was ready to agree to the concept of a split term -- that was until his own finance minister,

Waigel

, stood up and said that couldn't fly on constitutional grounds. But when Duisenberg played the gentleman and gave his word that he would retire midterm, the fix was in. Note that

Chirac

immediately demanded that Duisenberg's pledge be read into the minutes. Well, after all, talk is cheap. So are treaties, it would seem.

One thing is for sure today -- we have a much better idea of how little these EMU ministers value their written agreements. You can forget the

Maastricht

agreement and the stability pact. About as airtight as the

Mir

space station.

Kohl could not have looked more anxious to do the deal. Same old Helmut Kohl. Maybe this guy needs some negotiating lessons. Just like when he sold out the Deutsche mark at the time of the German reunification. Despite all economic advice to the contrary, he stepped up to convert West and East German marks at the rate of 1-for-1. Never mind that the correct value of the East German mark was probably one-tenth or maybe one-twentieth of the value of its Western counterpart.

Kohl is the man who will jump to pay any price to secure what he believes is a permanent peacekeeping alliance in Europe. It's like he thinks war is about to break out or there's some pressing political emergency. Drastic measures are needed immediately! And there isn't time to bargain over petty economic issues! Well, I say he got taken to the cleaners again. And what a campaign issue for the SPD! What was Kohl thinking?

Not to put too fine a point on it, but the top-heavy French control of the ECB is actually the most dangerous political thing to happen to Europe in decades. For the average German citizen, the worst nightmare has come true -- a monetary union with Italy and Spain with control in the hands of the French. Have a nice day.

Now here's the funny part. I am surprised it didn't occur to me before. The new currency, the euro, doesn't really have a proper name. Real currencies have names like dollars, francs, marks, yen and pesos. The SWIFT dealing codes for each currency are composed of three letters. The first two are the country and the third is the currency name. So you get USD for U.S. dollar, GBP for Great Britain pound and FRF for French franc. What are they going to do for the euro? Of course they will make something up, but think about it. Euro is "Europe." Okay, we could use EU for the first two letters. What about the third? It doesn't exist! It's not the Euro franc -- Germany would never agree to that! Its not the Euro mark -- well, the French run the ECB so that can't happen. So on, and so on. The point is that this euro process is so intensely political that they couldn't even agree on a name for the currency!

Here's my suggestion -- I think they should call it the Euro IPS. Why IPS? Because that's going to be the unspoken motto for the new ECB: "It's Politics, Stupid."

David DeRosa heads a trading research firm and is an adjunct professor at the Yale School of Management. His column on international finance and trading appears Mondays, Wednesdays and Fridays. He welcomes your feedback at

derosa@derosa-research.com.