At a conference in Washington Thursday marking the fifth anniversary of the launch of the euro currency by 12 European Union nations, economists generally hailed the new currency as a stunning success.
Fred Bergsten, the head of Washington's Institute for International Economics, applauds the euro as a spectacular success. Addressing the day-long conference, Mr. Bergsten pointed to low inflation in inflation-prone economies like Italy and to the efficiency of a single euro zone interest rate well below the levels that prevailed five years ago.
But one participant, Richard Cooper, an economics professor at Harvard University, said the adoption of the euro has done nothing to resolve structural problems, such as whether the European Central Bank or national governments are the final arbiters of economic policy. Mr. Cooper suggests that the pain of a rising euro could provoke Europe to make needed decisions.
"It may just be that a sharp rise in the euro will produce the kind of crisis in macroeconomic policy making that will force the Europeans to sort out both their true objectives, which surely do not limit themselves to price stability as we discover daily in listening to speeches [about the dangers of a strong euro] from chancellors and presidents, and so forth. And to sort out their procedural issues," he said.
The euro was launched at an exchange rate of about $1.19 (US) to the euro. In 2000 it declined to 82 cents. But today it has risen to nearly $1.30. Mr. Bergsten says if Germany and France believe today's high exchange rate restrains economic growth, then it is appropriate for the Americans and Europeans to coordinate changes in short-term interest rates.
"If you thought the euro is getting too strong, which I don't worry about too much quite yet, but within a couple more weeks it might be there, then the obvious thing would be a little reduction in interest rates in Europe," he said. "And possibly, heretical, a little increase in interest rates in the United States."
Participants doubt that the euro will displace the dollar as the principal currency of international trade. But they generally conclude that the euro has proven itself as a durable, reliable means of exchange, a real money, perhaps even an eventual rival to the dollar. The euro is highly regarded by the ten new countries that will join the European Union in May. All of them say they wish to eventually adopt the euro as their own currency.