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The heart of the matter: Euro crisis overshadows everything

by David Marsh, Chairman

The heart of the matter: Euro crisis overshadows everything

Michael Stürmer, one of the new 2011 recruits to the now 54-strong OMFIF Advisory Board, is one of Germany’s best-known contemporary historians and political scientists. He terms the European sovereign debt crisis and the trials over economic and monetary union (EMU) a challenge to European integration similar to the upheavals caused by the Cold War and the fall of the Berlin Wall. This time, though, he wrote in an editorial in Die Welt newspaper on 7 January, the US will not be engaged to help the Europeans overcome their difficulties; Europe is on its own.

John Kornblum, a former US ambassador to Germany and another new member of the board (a complete list is on p.28) sees the turbulence in a similar historical light. Kornblum is well aware of the political and economic significance of the EMU project for trans- Atlantic ties. As a long-time State Department official, shortly before the introduction of the euro in 1999, Kornblum visited European capitals on a mission aimed at toning down the instinctively anti-euro feelings of the administration of President Bill Clinton and the then chairman of the Federal Reserve, Alan Greenspan.

Geopolitics explains only part of the reasoning why, in the first OMFIF Monthly Bulletin of 2011, we are unashamedly placing emphasis on the euro. The outcome of the long struggle over the stability of the European single currency is one of the biggest questions overshadowing international asset management. It plays a crucial role in the international performance of the dollar – which has been a lot stronger than it would have been if Europe had been in perfect working order – and thus in the relationship between the American and Asian currencies, led by the renminbi. European money has become a potent factor on the international bond markets, not only because of the dramatic widening of European spreads on government debt but also on account of the new European borrowings launched as part of the bail-outs sanctioned by European governments.

These articles provide a snapshot of the state of play. Otmar Issing, former chief economist of the European Central Bank, doubts whether Europe will profit from the crisis. Wolfgang Schäuble, the German finance minister, takes comfort from the effect of the rise in peripheral country yields in promoting more European discipline. Former French prime minister Laurent Fabius says Germany would face a 100% revaluation if the euro were to end. Long-time Dutch central banker André Szász reminds us that France and Germany have never agreed on what EMU is really trying to achieve. Euro solutions are put forward by veteran civil servants from two non-member countries, Sir Michael Butler from the UK and Erik Holm from Denmark.

Jonathan Fenby outlines China’s stakes in the euro turbulence. Frank Scheidig, from one of OMFIF’s major partners, Germany’s DZ Bank, points out that the Germans have been economic beneficiaries of the European currency strains and tells us that the long-term goal of completing European integration has not been lost. Meghnad Desai underlines the differences between US and European policies but says that, ultimately, performance in Asia will provide the key. William Keegan asks what Denis Healey, the former UK chancellor of the exchequer who provided one of the main reasons why the UK did not enter the European Monetary System in 1978-79, would have made of it all. We will have a chance to find out when Queen Mary College and OMFIF stage a special evening for Healey on 25 January.

With best wishes for a Happy New Year.