Be careful what you wish for, goes the old adage, because you just might get it. After two weeks of currency turmoil in Europe, if anyone should realize the truth in the adage, it's the leaders of the European Community.
To achieve their dream of European unity, they have opened borders to free trade, permitted capital to flow unfettered from state to state, and deregulated financial markets. What they didn't do was to bring their economies into sync. They thought they could do that by negotiating a treaty in the Dutch city of Maastricht that would have created a single European currency by 1997. But currency speculators on the foreign-exchange market called their bluff. For Jacques Delors, Helmut Kohl, Francois Mitterrand, John Major, and other European leaders, it's back to square one. Their challenge now: To use the very market forces that doomed Maastricht to rebuild their shattered dream.
Instead of attempting to create a unified currency for Europe by FIAT, the EC should let the fittest members of the community -- Germany, the Netherlands, Belgium, Luxembourg, and perhaps even France -- form a solid nucleus with a common currency. This inner circle, or A team, would form a zone of tranquility within the EC best able to take full advantage of the Community's move next year to barrier-free internal trade. Those left out would thus have a powerful incentive to qualify for the A team. They wouldn't be impelled to do so. But if they failed to shape up, investors would flee and the $1.5 trillion-a-day global currency market would inevitably exert its own swift discipline.
If there is one lesson to be drawn from the currency turmoil of the past few weeks, it is that there's no political gimmick that can shield a nation from the rigors of the global foreign exchange market. That lesson shouldn't be lost on the U.S. as well, because a run on the dollar could raise interest rates and costs, impede growth, and torpedo efforts to stimulate the torpid American economy. The logical corollary is that unless Treasury Secretary Nicholas F. Brady abandons his benign neglect of the dollar's worth, he is playing with the same fire that scorched Europe.