The case for "Mr Euroland"

Most discussions about the euro focus on what it means for the politics and the economy of the EU. The actual and potential external impact of EMU is often ignored. But the euro will test the relationship between the EU and the US in many areas, including monetary policy, financial diplomacy and trade. And since financial issues are intimately linked to those of power politics, there may also be spill-overs into foreign and security policy. In order to ensure that EMU heralds an era of enhanced international co-operation, rather than of missed opportunities, the EU needs to rethink its external representation and create the job of "Mr Euroland", an individual who would speak for the euro-zone.

The euro is likely to enhance the EU's stature in global financial diplomacy. Its participants now share a single external balance of trade, as well as a single monetary policy. Over time, the euro is likely to become a currency with a significant international role. And the rest of the world - increasingly - expects the euro-zone to speak with a single voice in the management of financial crises such as those which wracked Asia in 1997-98.

The handling of those crises led to some harsh words between the US and European governments, with each side of the Atlantic having very different memories. The Americans recall how the then US Deputy Treasury Secretary, Larry Summers, shuttled around the region, and how his department provided the intellectual input for the IMF agreements that were stitched together. Many Americans felt that the Europeans were conspicuously absent from the region, hopelessly divided and focused on their own internal priorities.

The Europeans, in contrast, remember that they were asked to pay a great deal for US-inspired measures, without having had much say over their conception. And yet the European banks were owed far more money than American banks. To add to the Europeans' annoyance, they reckoned that the IMF packages for the Asian countries were too deflationary.

To reduce the scope for such disputes and misunderstandings, Euroland needs to develop a strategic view of its wider responsibilities in co-managing the global economy. To their credit, many US policy-makers want the Europeans to overcome their internal divisions and nominate a political representative that could speak for the euro-zone. Evidently, US support for such an authoritative spokesman would depend on what he or she said. But the creation of such a post would - on balance - facilitate the striking of bargains and increase the chances of making them stick.

Euroland needs a political figure who could operate alongside ECB president Wim Duisenberg. The point of such a post should not be merely to deal with the old American grumbles about European divisions and provincialism. Many Europeans also believe that their existing arrangements are unsatisfactory and need to be reformed. Now that the Asian financial crises are history, and the euro has emerged as a solid currency, the time has come for Europe to make its presence felt at the high tables of global finance.

Up until now, the EU's ministers and officials have merely tried to forge 'common understandings' on international financial questions. Such efforts are necessary but not sufficient: co-operation of this kind remains slow, reactive and often vacuous.

Furthermore, the EU's current procedures for external representation show that it is unable to make painful choices. In G-7 negotiations, for example, the euro-zone is represented not only by three national central bank governors (France, Germany and Italy) and the ECB president, but also by the finance minister of the country that holds the rotating EU presidency - and the Commissioner in charge of monetary affairs 'to lend assistance'. This unwieldy arrangement has - predictably - drawn a negative US reaction. The Americans point out, with some justification, that despite the lofty talk of European integration, there are now more Europeans around the table at every international meeting.

So who exactly should be the political voice of Euroland? The Commissioner in charge of EMU (now Pedro Solbes), say many Euro-enthusiasts. But in reality any Commissioner, however brilliant, lacks political legitimacy; the large member-states, especially, would simply not accept that he should speak for Euroland. Nor does public opinion seem ready for such a step. It might seem sensible for the Council of Ministers to take prime responsibility for external representation, because of the sensitivity of the issues, and because the member-states still control the money needed for international rescue operations. However, the rotating presidency of the Council is ill-suited to perform this task. It lacks continuity and credibility and is seen by many non-Europeans, especially Americans, as a complicating irrelevancy. Larry Summers is just not going to treat the finance minister of Slovenia as a serious interlocutor.

So the EU needs a "Mr Euroland", appointed because of his personal qualities and answerable to the finance ministers of the Eurozone countries. The job would be comparable to the new post of EU High Representative for foreign policy. The US Treasury Secretary or the IMF Managing Director could call Mr Euroland if, say, Russia defaulted, or if they simply wanted to review the global financial scene. The euro-11 council, the informal body which groups together the finance ministers of the countries in EMU, would give Mr Euroland a mandate to negotiate agreements with other political authorities. The euro-11 council should then speedily ratify (or reject) any international agreement thus negotiated.

This proposal would require a matching reform of the euro-11 council, so that it took on the power to take formal decisions on some international financial questions. If a single EU representative put forward a common position in international fora such as G-7 meetings, the Union would gain the kind of credibility and strength that it evidently lacked during the Asian crises. Over time, it would make sense for Mr Euroland to become the euro-zone's political representative at the IMF.

Evidently, the EU governments are some way away from creating the post of Mr Euroland. Distinctive national outlooks, shaped by history and habit, not to mention matters of prestige, preclude a rapid agreement. Nonetheless, the Europeans should work towards giving themselves a single voice, for the benefit of the rest of the world as much as themselves.