Despite all the doubters, Europe agreed at Maastricht, the Netherlands, to adopt a single currency by Jan. 1, 1999. The European Currency Unit, or ecu as it will be known until a new name is adopted, seems sure to be firmly rooted in low inflation and small budget deficits. Foreigners, once eager to hold dollars and buy dollar debt, will have an alternate -- and potentially more attractive -- place to invest their cash. Anticipation of the common currency's arrival will also give a fillip to EC92, the European Community's program to eliminate internal trade barriers by the end of next year. Both developments give the U.S. food for thought.
The ECU won't dethrone the greenback overnight. But an attractive alternative to the dollar, which hasn't existed since sterling folded in the late '70s, will make it harder over time for the U.S. to run up huge federal deficits financed by foreign capital. Then, too, a stronger integration of Europe's industrial and commercial economy risks putting the U.S. further out on a trade limb. Many European countries already do more than half their trade with neighbors in Europe. Three-quarters of German foreign trade, for instance, is with other West European nations. A common currency will lift those ratios even higher and increase Europe's clout in trade talks.
The temptation, particularly on Capitol Hill, will be to read all this as auguring an inexorable move to Fortress Europe. Congress should resist the urge to respond by building walls around a Fortress North America or even Fortress Western Hemisphere. The U.S. rightly insists that the ec must open its highly protected market for farm products. The way to achieve this is by negotiation in the General Agreement on Tariffs & Trade and other forums -- not by shouting "foul!" through a bullhorn as a preliminary to peremptory demands. More than ever, as Europe creates a formidable economic union, the U.S. needs it as a partner -- not an adversary in trade wars.