The Europeans' common system of money is on again. After a final round of doubts and delays, it went into effect last week. The chances that it will hold together are no better than so-so. But if it works, it will have political consequences of incalculable breadth.
Eight of the Common Market countries have now agreed that their currencies -- marks, francs, guilders and so forth -- will be closely tied to each other. It means that their exchange rates will move very little among themselves, although all of them together might move substantially against the U.S. dollar. The Common Market economies have become interwoven to a point at which the swings in exchange rates are intolerably disruptive. If you are a German manufacturer with important customers in Belgium or Italy, it is bad for your ulcer to have the franc and the guilder moving constantly and unpredictably against the mark. But if you are a German manufacturer, you also know that there's more to stabilizing rates than arithmetic.
Two very different economic philosophies prevailed in Western Europe in the mid-1970s. Germany and some of its smaller neighbors followed a policy of keeping inflation low at all costs. The others, led by France, Britain and Italy, let their inflation rates rise extremely high in a desperate attempt to restrain unemployment. That experiment has failed, and the highest of those inflation rates have now been pulled down significantly. But France's rate is still nearly 10 percent, while Germany's is about 3 percent. Currencies can't be held together very long if they continue to inflate at different rates. The new European monetary system represents a joint decision to make those inflation rates converge, mainly downward. That, in turn, requires convergence of national policies on employment, interest rates, investment -- just about everything that comes under the heading of economics. Less demanding attempts at currency linkage have failed twice before.
Of the Common Market's three largest economies, the Germans have always been ready to take this next step toward a confederal system as long as the price in inflation was not unreasonable. The British are still unwilling to take it on any terms, and will remain outside of it for the time being. They are holding elections later this year, and the governing Labor Party is bitterly divided on everything concerning the Common Market. The crucial vote for the new monetary system was the French government's.
For the past two and a half years, the French government has been struggling against inflation. The long squeeze is beginning to show hopeful results. But one of the costs is, unfortunately, a level of unemployment that, by French standards, is very high. There have been savage riots in some of the industrial towns where steel plants are being closed. Both the Gaullist right and the left have been demanding a return to heavier government intervention in the economy and the absolute protection of jobs. But the two parties of the left can't get together on tactics, and in any case the Gaullists won't carry their dissent to the point of voting against the government. That leaves Premier Raymond Barre with a free hand -- for the time being -- to pursue a policy of greater competition. It will eventually bring France the benefits of lower inflation and higher prosperity. But the gamble is, as always, whether Barre can manage to hold to that course until the benefits begin to be apparent to the voters.
It is a courageous commitment. If the new European monetary system survives, it will be a powerful force for unity in a confederation with a population larger than that of the United States, and wealth now nearly its equal.