Karl Otto Pohl smiled and looked heavenward as he stood before a roomful of moneycrats at the recent International Monetary Fund meetings in Washington. "Thank God for our French friends and neighbors," the former Bundesbank President said. "They voted yes."
But French voters' narrow approval of the Maastricht Treaty on monetary and political union has hardly quieted the firestorm of controversy over Europe's future. And it's probably all for the best: Shaken awake by a restive public and battered by the stormy $ 1.5 trillion-a-day currency market, European leaders now must confront once and for all precisely how ambitious they can be in unifying Europe.
With much of the region battling recession and the high interest rates result-ing from Germany's lavish spending on its eastern half, should the European Community continue pressing ahead to create a single currency and central bank as early as 1997? Or should its leaders simply conclude that the long-awaited scrapping of internal trade barriers on Jan. 1, 1993, is about all Europeans can handle now?
FLEXIBLE. Fortunately, there's a third option. Pohl calls it "a multispeed approach." Others call it "two-track." Whatever the name, it's a scheme that could allow Europe to continue integrating economies and financial markets and avoid the stresses Maastricht has produced. In a multispeed Europe, tight-money devotees would form an inner circle and either create a new currency or permanently peg existing ones to the German mark. These core members could align their economies and quite likely win increased trade and investment. Such a club would probably hang together better thanthe shell-shocked exchange-rate system that the EC is attempting to keep together today.
For the rest of Europe, free trade would continue, just as planned. Because such a relationship doesn't carry with it Maastricht's tough requirements for economic solidity and currency strength, it could also permit new members to join the EC more easily -- widening its trade base. Even Hungary or the planned Czech Republic someday might qualify.
Setting countries in competition over time might induce weaker ones to pursue the same anti-inflation policies that Maastricht demands. Such a process might be slower and more flexible than the forced-march idea that Maastricht imposed on Britain, Italy, and others. Indeed, while the British now seem bent on pumping up their economy with interest-rate cuts and currency devaluation, some other Europeans are already acting as if survival of the fittest will be the new order.
Take Sweden, which may not even join the EC until the late 1990s. It has suffered 500% interest rates and a crushing austerity program to keep its krona in line with the mark. But as 74% of Sweden's trade is already with the EC, the government feels it has no choice. Worried that corporate investment will flee Sweden for healthier economies, "our goal," says Lars Jonung, chief economic adviser to Prime Minister Carl Bildt, "is to adjust to the inner core of Europe."
The U.S. might even benefit if Europe's two-track approach to monetary union pays off. A healthier Europe probably would buy more U.S. goods. More important, a rock-solid Eurocurrency could present an alternative to the dollar in international trade and finance. That would put pressure on the U.S. at last to put its fiscal house in some order.
NO RUSH. Amid the current currency-market turmoil, Europe's leaders have plenty of reasons to avoid a rush toward a broad monetary union. In any event, that idea is losing support. Even with the French voting oui, says Commerzbank Chairman Martin Kohlhausen,"there is little support in Germany for using a common currency to promote European integration." Indeed, attempting to do so right now might only sour European voters for years to come on the notion of a more closely linked Europe.
Choosing a two-track approach could keep the one-Europe momentum alive at a time when the EC economy can ill afford to pass up any and all growth opportunities. Letting market forces determine the path may take time. But in the end, that might prove to be far more effective than the hurry-up dictums that are spelled out in the Maastricht Treaty.