The crisis anticipated for the end of March 2006 will provide a serious test for Euroland and will determine whether the Euro is sustainable or not. The significant fall of the Dollar will automatically induce a strong upward pressure on the Euro against this currency, and against others linked to the Dollar (the Chinese currency namely). The situation will provoke an immediate and significant fall of the competitiveness of European companies exporting towards the Dollar zone, with a negative impact on European exportations, accompanied by an immediate aggravation of unemployment in the Euro zone. In this situation, some countries will be tempted to get away from the Euro in order to avoid difficulties. However this centrifugal force will be opposed by the level attraction of the one and only zone of monetary stability that Euroland will provide. If a conflict between these two opposite trends develops within Euroland, it will be even more perceptible in non-Euroland member EU-countries.

In this regard, Euroland leaders should be concerned with the need of new member-states (all of them future members of Euroland) of a solid anchorage. These countries will be the most exposed to instability and the situation will impose clear perspectives as well as efficient protection mechanisms for their currencies. In parallel, the case of the three ‘non-Euroland but EU-15 members’ – Denmark, Sweden and the UK – will soon emerge as these countries will be in a rather tricky situation. Denmark and Sweden will most probably express a desire to join Euroland which will not be opposed by public opinions. The British case is more complex because, as detailed previously in this issue, the UK is closely intermingled with the Dollar zone and their amount of assets in US Dollars is very superior to those of the rest of the EU (about a third of Europe). In this condition, and in the case of such a crisis, their economic and financial situation is difficult to anticipate, further than predict that their situation will be the trickiest of all European countries. The City has been playing for decades the role of Wall Street’s side-channel. A financial and monetary crisis affecting the Dollar would therefore be catastrophic for the London financial centre.

Euroland leaders should therefore study three types of scenarios in order to anticipate the crisis:

. a scenario of « anchorage » of the new Member states, going as far as considering their fast entry in Euroland in case of emergency; Italy was accepted while it did not comply (by far) to the requested criteria; there is no reason then why it would not be possible to integrate the 10 new Member-States to Euroland, if the situation imposed it.

. a scenario of fast negotiation-integration with Sweden and Denmark.

. and a more random scenario, analysing the possibilities regarding the United-Kingdom.

In the framework of such a crisis, UK’s entry in Euroland should be based on the definition of monetary, financial and economic fundamentals clearly compatible with the Euro zone, otherwise the UK would import in Euroland its Dollar-related instability. Euroland leaders should start today working on the elaboration of these indispensable conditions…

Read more in the GEAB No 2 / 16.02.2006