The Euro in a Global Context: Challenges and Capacities
The purpose of this chapter is to evaluate the experience of the Euro Area to date in a broad global context. The central question is: How has the creation of the euro affected the power of participating states to cope with external challenges? Three broad issues are explored. First, how well equipped is the Euro Area to deal with any threat of financial instability? Second, can the euro compete effectively with America’s dollar in global markets? And third, does membership in the Euro Area enable European Union governments to play a more influential role in international financial forums? Overall, the chapter concludes, the project has failed to live up to expectations. Though exposure to exchange-rate disturbances has been reduced by the merger of currencies, the Euro Area remains largely a passive participant in global payments developments and, if anything, has become even more vulnerable to threats of financial instability. Likewise, the euro has failed to mount a significant challenge to the dollar and the bloc continues to punch below its weight in monetary diplomacy.