MUNDELL: EURO WILL FORCE BUDGETARY DISCIPLINE, INCLUDING ON ITALY

Robert Mundell, Columbia University economist and Nobel laureate, is considered the "theoretical" father of the euro. He spoke to European Viewpoint editor Nathan Gardels.

EV: Has the Euro launch been successful so far?

ROBERT MUNDELL: Yes, the launch has been successful. The new currency was greeted with enthusiasm rather than alarm, and it is creating a new element of shared experience for Europeans. Even before the paper currency was introduced, speculation against the individual national currencies had been eliminated, and confidence in the established exchange rates was confirmed by the fall in interest rates in all countries except the pace-setter, Germany
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EV: What will be its main impact over the next decade?

MUNDELL: It will foster further European integration in fields of trade, finance and money, and it will lower transaction costs and increase transparency for all exchanges. At the same time, Europeans will have at their disposal a world-class currency second only to the dollar, and in the long run it is possible that the euro will challenge the historic supremacy of the U.S. currency.

EV: What are your worries, particularly since the Italian government seems to be lukewarm?

MUNDELL: My worries are that European governments will take advantage of the benefits conferred by the euro, including lower interest rates that reduce interest payments on the public debt and lower budget deficits, and rest on their laurels. Instead, they should work to improve the economic situation and health of each economy by deregulating the labor market, fostering competition and denationalizing state enterprises.

Italian doubts about the euro may partly reflect the belief that it will force budgetary discipline and deregulation measures against the interests of labor. However, I believe that this new discipline would have had to come in Italy, even in the absence of the euro. In this respect the euro represents a wake-up call. Italy does not want to become another Argentina!


(c) 2002, European Viewpoint. Distributed by Los Angeles Times Syndicate International, a division of Tribune Media Services
For immediate release (Distributed 1/9/02)

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