I am delighted to guest at this festive occasion celebrating the 50th anniversary of diplomatic relations between Finland and the People’s Republic of China. I have been asked to give a comment on the outlook for the common European currency, the Euro. During the past year or so, a lot of different views have been presented about the Euro’s performance. 46) Considering the fact that the Euro is a new currency with a major international role in the forign exchange markets, it is only natural that it has drawn much attention.
However, I would like to point out that attempts to measure the sucoess of the Economic and Monetary Union by the Euro’s external value are misplaced. The benefits of the Euro stem from elsewhere. Indeed, the benefits that the Euro can and will offer are distinctly of a long-term and structural nature. In the end, a short term misalignment of the Euro has very little to do with these structural developments.
One can come up with a number of explanations ’for the depreciation of the Euro or the strength of the US dollar, which is the other side of the coin. 47) The growth gap, and associated intere, st rate difference between the Euro area and United States, have been no doubt among the most popular explanations, and there is some truth to this. Most importantly, the dynamic growth in the US has been a source of constant surprise to most of us.
48) However, in the meantime the economic outlook for the Euro area has improved considerably. The European Central Bank has succeeded very well in delivering price stability for the Euro arefi, which is its primary and the most important objective.
Member States of the Euro area have agreed on, and implemented a number of important initiatives aiming at raising the growth potential of the Euro area. Indeed, despite of these facts, it seems that the uncertainties associated with the Euro area have received more attention than those affecting the US Economy. This asymmetry has affected the Euro negatively. 49) According, it is widely recognised that the Euro is significantly undervalued, and the present level does not reflect the p fundamentals of the Euro area economy.
Most of these challenges reflect the fact that the Euro is still a young currency. 50) In fact, for the citizens of the Euro area, the single currency will not become more tangible until’2002, when the actual notes and coins will be introduced. This is just to say that at this point only tentative conclusions of the functioning of the Euro can be made.
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