A Euro Divided Cannot Stand

One of the major problems confronting the successful implementation of the euro is the bifurcation of European policy. Monetary policy is slated to be centralized under a new European Central Bank. But most other policies, ranging from taxes to labor law, will remain with national governments. How is a single currency going to succeed if policies don't converge?

France's decision to go ahead with introducing a 35-hour workweek starting in the year 2000 is a case in point. Defying all conventional economic wisdom, the Socialist government is attempting to lower the nation's double-digit jobless rate by forcing employers to cut workers' hours. Employers are howling that their labor costs will rise by 10%. Why should they employ more people at a higher cost?

Why indeed. With the euro scheduled for introduction next year, France's unilateral action can only set up tension within the euro bloc. It could change investment flows as corporations shift factories to lower-cost countries. It could make France much less competitive than, say, Germany, but both will be locked into the same currency.

What will happen? No one knows, but one can guess. Unless there is convergence on all policy, not just monetary policy, there will come a day when some country chooses to opt out of the euro. Then what?

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