The euro in the dollar's future Momentum gains: Self-fulfilling belief that Europe will adopt one currency.

October 22, 1997

THE LIKELIHOOD has increased that the European Union will have the mechanisms for a single currency -- the ''euro'' -- in place by Jan. 1, 1999, and will have coins and notes in circulation in two-thirds of its 15 member countries by mid-2002.

A few months ago, this reach seemed beyond Europe's grasp. Germany's cost of unification and France's tenacious retention of the welfare state meant the necessary deficit reductions could not be achieved. It was fashionable to say that only Luxembourg met the hard-currency criteria and only Ireland came close.

But since the EU summit in June reaffirmed the political will, finance ministries have become convinced it will happen and multinational companies have come to depend on it. The goal is a euro to rival the dollar as the world's benchmark currency, making a united Europe -- not the United States -- the world's economic power.

Belief that it will happen is overcoming doubt that it should. Political leaders are coming to believe that this ''deepening'' of Europe is necessary to its ''broadening'' (taking in new members), rather than a barrier to it.

Reactions to the mood swing are taking place. Deputy Treasury Secretary Lawrence Summers assured a Senate committee yesterday that the United States has nothing to fear. The dollar will remain the reserve currency of choice in Asian markets; the euro will not greatly affect U.S. borrowing costs or interest rates.

In Britain, Prime Minister Tony Blair's Labor government had closed no option while trusting Germany and France not to get their act together. That no longer works. Most of the Cabinet and financial advisers believe Britain needs the euro. The problem: Mr. Blair promised the electorate a referendum first. Public opinion is not ready, and the Blair government has made no effort to change it. Meanwhile, the French Mint will start striking the euro coin next spring. Such announcements focus the mind. Belief in its inevitability can only enhance its acceptability.

Pub Date: 10/22/97

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