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The Euro Is Here!But will it last?by Paul KiefferIn what some European analysts described as Europe's financial milestone of the 20th century, the new European currency, the euro, was officially introduced on January 1, 1999. In a special meeting held the previous afternoon of December 31, 1998, the finance ministers of the eleven European Union countries participating in the euro-Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain-met to officially set the final exchange rates among their currencies. With only minor adjustments, the final exchange rates were those of the European Monetary System (EMS) with its "currency," the European Currency Unit, more commonly known as the ECU. In contrast to the ECU with its floating exchange rate, the exchange rates set on December 31 may no longer be changed, thereby forming the basis for the euro as the common currency for the European Monetary Union. Although the turn of the year was the official start for Europe's new currency, many observers view December 3, 1998, as the unofficial launch date for the euro. Acting in unison, the national banks of the eleven euro countries adjusted their key lending rates to achieve a uniform Euro-Zone interest rate of 3 percent. Since the prior interest rates within the Euro-Zone had varied in some cases by more than two percent, economists had expected a series of gradual shifts to standardize rates by the end of the year. The speed and decisiveness of the decision caught bankers and stock markets by surprise. Perhaps the most remarkable aspect of the interest rate decision was that it represented the final major decision of those national banks, which have now been replaced by the European Central Bank. Official currency trading with the euro did not begin until Monday, January 4, 1999. European banks and institutions made full use of the long holiday weekend to complete adjustments to their systems. Those adjustments could not be made until the final exchange rates had been announced on the last day of 1998. The Deutsche Bank AG, Germany's largest commercial bank, and also the largest bank within the new Euro-Zone, had more than two thousand computer programmers and technicians working in continuous eight-hour shifts over the weekend to reprogram its approximately 1,300 software modules with the final exchange rates. Other institutions did the same to meet the Sunday night deadline in Europe when stock and currency markets in the Far East would open on Monday local time. The first day of trading was a complete success, with the euro trading one cent higher to the U.S. dollar than the rate established by the Euro-Zone finance ministers. Having been closed the last day of 1998 to work on the conversion of their systems, the Frankfurt stock exchange and other Euro-Zone bourses reopened on January 4, now quoting all stocks traded only in euros. And within one week the new automotive giant Daimler-Chrysler became the first major company to announce that by the end of January prices of its cars at all dealerships within the Euro-Zone would be quoted in the new currency. With bank transactions now being cited in euros and simultaneously in the still-existing local currencies, many Europeans wonder why they have to wait until January 2002 to begin using the real currency-the euro bills and coins that will be introduced only then. Popular pressure for an earlier start for the paper money had become so noticeable that Euro-Zone finance ministers, meeting during the third week of January, discussed a proposal to revise the euro timetable. The proposal was quickly tabled, but it reflected the seemingly unstoppable momentum generated by the historic step of introducing a common currency within Europe. Will the Euro Succeed? Opinions Vary Predicting the future success of the euro has revealed stark contrasts. When asked about the euro on May 2, 1997, Alan Greenspan, U.S. Federal Reserve board chairman and arguably the most influential person in world financial markets today, commented that "the euro is coming, but it won't last long." Only three months earlier, U.S. Secretary of the Treasury, Robert Rubin, suggested during the annual finance symposium held in Davos, Switzerland, that for the first time since World War II the new euro had the potential to give the U.S. dollar strong competition as the world's leading currency. However, last summer, U.S. deputy Treasury secretary Larry Summers appeared to contradict Secretary Rubin. In a speech he commented that "the dollar will remain the primary reserve currency for the foreseeable future.... We expect the impact of the euro on the monetary system to be quite limited initially and to occur only gradually." Within Europe opinions varied, too. In June 1998 former German chancellor Helmut Schmidt, widely respected for his financial expertise, concurred with Secretary Rubin's opinion. (Chancellor Schmidt and his French counterpart, Valery Giscard d'Estaing, were the ones to propose the forerunner of the current European Monetary Union, the European Monetary System, during meetings held on July 6-7, 1978.) Most banks and large multi-national companies were vocal supporters of the new currency. For them a common currency means simplified accounting and considerable savings by avoiding currency exchange fees. On the other hand, opinion polls revealed the public's reluctance to embrace the euro, largely the result of fear. An estimated 60 percent of Germans consistently voiced wariness in surveys, and a new political party-"pro-DM" (deutsch mark)-ran in last September's national election in a failed attempt to overturn Germany's participation in the euro. Questions about the stability of the new currency were asked frequently by Germans reluctant to give up the German mark, which has been one of the world's strongest currencies in recent years. In this century Germans have experienced economic disaster and rampant inflation, making them especially sensitive to any perceived challenge to Germany's economy. Their concerns about the stability of the euro are understandable in view of the divergent national economies represented within the Euro-Zone. Countries like Portugal and Spain have much lower wage levels than in northern Europe, and generally southern European currencies-the Italian lira is a good example-have been known for inflation and higher interest rates. German politicians of all parties and the chairman of the German Bundesbank, Horst Tietmeyer, have reassured Germans that the euro will be as solid as the German mark has been. All European Monetary Union member countries had to meet strict economic requirements to qualify for membership, including a maximum of three percent deficit spending by national governments relative to each country's GNP. The new European Central Bank chairman, Wim Duisenberg, from the Netherlands, has repeatedly stated his priority of currency stability instead of using interest rate mechanisms to promote economic growth. This policy is basically identical to the one pursued previously by the Bundesbank. With the debt criteria fulfilled and an inflation rate of only 0.9 percent within the new Euro-Zone during 1998-and virtually no inflation in Germany-the start-up conditions for euro stability appear to be excellent. The Euro and Bible Prophecy In view of the conflicting predictions for the euro's success, what does Bible prophecy say about the new European currency? As surprising as it might seem, the end-time prophecies of God's word do not even mention the euro. However, this does not mean that we cannot attempt to predict the success of the euro from prophecy. Bible prophecy is similar to a road map that gives the general direction and an overview, but does not list all the details and sites along the way. What we do learn about the end-time power described in the book of Revelation allows us to venture a prediction. The final resurrection of the Roman empire, the fourth beast of Nebuchadnezzar's vision in Daniel 2, will be a religious, political and economic system. This great economic system is "eulogized" in a lamentation found in Revelation 18. The description of this end-time power reveals an economic powerhouse renowned for its influence on world trade: "And he cried mightily with a strong voice, saying, Babylon the great is fallen, is fallen.... For all nations have drunk of the wine of the wrath of her fornication, and the kings of the earth have committed fornication with her, and the merchants of the earth are waxed rich through the abundance of her delicacies" (verses 2-3). In this chapter the thrust of the lamentation is not for the religious deception and other evils that this system will have perpetrated. Instead, the "merchants of the earth shall weep and mourn over her," because their ability to trade their wares will be negatively impacted by end-time Babylon's fall (verse 11). Those merchants will have become rich through the trade promoted by Babylon (verse 15). Not only merchants, but also the merchant marine will have benefited from her trade: "And every shipmaster, and all the company in ships, and sailors, and as many as trade by sea, stood afar off, and cried when they saw the smoke of her burning, saying, What city is like unto this great city! And they cast dust on their heads, and cried, weeping and wailing, saying, Alas, alas, that great city, wherein were made rich all that had ships in the sea by reason of her costliness!" (Revelation 18:17-19). It is remarkable that the final resurrection of this historic empire is described-among other things-in terms of its economic impact on the world. Earlier revivals of this system are not described in the same way, which could imply a special attribute of the final revival that did not apply to earlier ones. We know that Satan will be this system's real "power behind the throne." Interestingly enough, some kind of trading system appears to have been involved in Satan's original departure from God's way: "Through your widespread trade you were filled with violence, and you sinned. So I drove you in disgrace from the mount of God, and I expelled you, O guardian cherub, from among the fiery stones.... By your many sins and dishonest trade you have desecrated your sanctuaries" (Ezekiel 28:16,18; emphasis added throughout). End-time Babylon's trading renown appears to be a final culmination of Satan's warped approach to economics. We also know from prophecy that this end-time union will be a multi-national effort (Revelation 17:12-14). We do not yet understand how the ten kings of this prophecy are to be viewed, but we do know that a king in the Bible is often synonymous or interchangeable with a kingdom or some kind of national entity. The final end-time union of kings was also part of Nebuchadnezzar's vision interpreted by Daniel: "And in the days of these kings [symbolized by the ten toes of the image, cf. verses 41-42] shall the God of heaven set up a kingdom, which shall never be destroyed: and the kingdom shall not be left to other people, but it shall break in pieces and consume all these kingdoms, and it shall stand for ever" (Daniel 2:44). Benefits of the Euro for Europe's Trade The 11 countries of the Euro-Zone currently have a combined gross domestic product of 6,300 billion [6.3 trillion]U.S. dollars compared with the U.S.A.'s 8,100 billion [8.1 trillion]. The Euro-Zone is now the world's largest importer and exporter, even excluding intra-E.U. trade. Euro-Zone exports are 25 percent higher than U.S. exports and twice those of Japan. The single currency bloc has the largest population of the three major trading areas: 291 million people compared with 269 million in the U.S.A. and 126 million in Japan. If the European Monetary Union eventually includes all 15 European Union countries, Euro-Zone will then become the world's largest economy. The introduction of the euro will lead to economies of scale for Euro-Zone and foreign companies. A German company exporting within the Euro-Zone can now maintain its bookkeeping records in the euro, with all billing and payments made in the new currency without foreign exchange losses or fees. Foreign companies exporting to the Euro-Zone can also use the new currency to denominate their trade. Like its German counterpart, a Japanese company can denominate its exports to the Euro-Zone in the euro, rather than using individual currencies or the U.S. dollar, as might have been the case in the past. The single currency will make price comparisons within the Euro-Zone readily transparent and will result in increased competition for goods and services. There will be some negative effects of this transparency, such as the possibility of production being moved from higher to lower wage areas within the Euro-Zone. However, the benefits in reduced transaction costs and greater capital mobility are expected to offset any temporary setbacks caused by increased competition across national borders. We can now propose an inference from Bible prophecy about the future success of the euro. It is reasonable to assume that the economic power of the prophetic end-time Babylon will only be enhanced by having the "ten kings" use a common currency, as was the case, by the way, within the Roman empire. For this reason the author is convinced that the euro will be a success, even if there are some setbacks during the initial adjustment period. The Euro as a Competitor to the Dollar Could the euro become a competitor to the U.S. dollar as some have predicted? Could shifting economic preferences eventually lead to conflict between the powers behind the dollar and the euro? The Bible shows that economic considerations-desiring to have, not being able to obtain-can lead to strife: "Where do wars and fights come from among you? Do they not come from your desires for pleasure that war in your members? You lust and do not have. You murder and covet and cannot obtain. You fight and war. Yet you do not have because you do not ask. You ask and do not receive, because you ask amiss, that you may spend it on your pleasures"(James 4:1-3). The U.S. dollar has been the leading currency in the world for more than half a century. Neither the Japanese yen nor the German mark have had much effect on the dollar's leading role. The use of the dollar far exceeds the approximately 25 percent U.S. share of world industrial output. For example, the dollar is involved in more than 80 percent of all foreign exchange transactions and accounts for more than half the world's foreign exchange reserves. Why should the euro have any impact on the dollar's leading role? As mentioned above, the Euro-Zone area is already the world's largest importer and exporter, and a common currency will only serve to facilitate the region's trade with the rest of the world. The euro is also likely to be widely used in eastern Europe and in northern Africa. Former French colonies in Africa, whose local currencies were already tied to the French franc by fixed exchange rates, are now pegged directly to the euro by a fixed exchange rate, in effect making them a subset of the euro. The currency denomination of international trade is also an important influence in the strength of currency. Currency transactions between Japan and Europe, for example, are almost always referenced through the dollar, while most exports from Asia to Europe are also invoiced in the U.S. currency. Any shift towards using the euro in trade will have a positive impact of the desirability of holding the euro as a reserve currency. It is reasonable to assume that the Euro-Zone will have more and more of its trade with the rest of the world denominated in its own common currency, leading to increased demand for the euro. What if the world's central banks respond by switching a portion of their dollar reserve holdings to the euro? Most economists believe that it is only a matter of time before the euro achieves status as an international currency. The question is when. It is true that any number of economists-especially in the United States-would agree with Martin Brookes, international economist at Goldman Sachs, who thinks that "it will take a very long time before there is a big shift to the euro." This type of thinking was reflected in last October's economic outlook issued by the International Monetary Fund, a dollar-predominant lending facility. The IMF report predicted that the euro would achieve international status only "in the medium to longer-term" time frame. The minority view is that the significant decrease in currency transaction costs for trade with the Euro-Zone will lead to the rapid acceptance of the euro worldwide. At any rate, based on the current predominance of the U.S. dollar and the prophetic indications of a European trade powerhouse, the exchange rate between the dollar and the euro will become the most important exchange rate in the world in the years to come. Any increase in the euro's value relative to the dollar will likely impact U.S. domestic interest rates, the price of goods imported by the U.S. and the cost of U.S. goods exported to Europe. The euro is here, and if Bible prophecy gives us any indication, it is here "to stay" and "succeed" until the return of Jesus Christ to this earth becomes a reality. WNP Paul Kieffer lives with his wife, Monica, in Niederkassel, Germany. He pastors the German and Swiss brethren. |
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