Europe's Gamble

AFTER THREE DECADES, the quest for European monetary unification may well bear fruit on January 1, 1999. On that date the European Union (EU) plans to introduce a common currency, the euro, in member states that satisfy specified macroeconomic convergence criteria. If the Economic and Monetary Union (EMU) project is launched on time and with the maximum membership of eleven countries that currently seems possible, it will create a market of close to 300 million consumers served by a common currency-roughly 10 percent more populous than the United States. Eventually that market could comprise twenty-five countries or more if EMU is successful and the EU expands eastward. With only a year to go, however, Europe's political establishment remains riven with doubt about several questions central to the timely start and ultimate viability of EMU. What economic and political factors will determine the initial slate of EMU members? How will monetary and fiscal policy operate within the planned euro zone? What will be the economic impact of currency unification? Will domestic political realities become increasingly inconsistent with the visions of Europe's leaders, or will electorates come to love the euro? The procedure likely to be followed in introducing the new European currency itself magnifies the general uncertainty. Tightly circumscribed by obscurely moti-