GERMANY: Building the Future...
Student Text Page No. 2: "Within Its Region"

When bank customers in Munich and other German cities visited their ATM machines in early January 2002, they were not able to withdraw Germany's highly respected Deutsche Marks. Instead, they pulled out trayfuls of euros — the brand-new currency of the European Union (EU). Actually, they'd been expecting the currency switch for some time.

Germany formally adopted the euro in 1999. And, although D-Marks continued to circulate for the next two years, business people quickly adapted "euro-talk" for writing new contracts. Even local Supermärkte began displaying prices in both currencies. So Germans knew what was coming. Nevertheless, some were reluctant to see the D-Mark go….

Why? A currency's strength depends on the health of the economy it represents. And that’s why the D-mark had gained such respect: At over $2 trillion, Germany’s gross domestic product (GDP) is the third largest among high-tech economies. The nation's budget deficit hovers near 3 percent of its GDP; its inflation rate is only 2.4 percent. Then why did Germany switch to a new currency — one whose strength will depend on the combined economies of the 12 EU nations adopting it? For starters, economists predict that the euro will be strong, too. The combined GDPs of the 12 "euro nations" ($7.4 trillion) hold a high second place to the USA’s GDP ($10.1 trillion). And most euro nations have stable track records. But Germany’s decision was based on more than numbers. For Germany, the euro is a way to promote European unity....

History lessons. After World War II, Germans assumed a special responsibility for advancing European peace and prosperity. They pledged never again to tolerate the conditions that had led to the Holocaust. They rebuilt relations with former enemies. And they looked for new ways to promote regional unity. In 1951, for example, Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany agreed to pool the production and trade of their coal and steel. In 1957, they formed a "common market" for the removal of mutual trade barriers. The new community continued expanding. In 1992 it was transformed (with strong support from Germany) into the European Union. And today the EU is a single market for the free movement of people, goods, services, and capital among 15 member nations. Its own institutions enforce market regulations and shape policies for all members on such issues as immigration.

Eyes on.... The EU plans to confer membership on 10 additional European nations by 2004. Germany is already the No. 1 trading partner of three of them — the Czech Republic, Hungary, and Poland. But as the world’s second largest exporter, Germany must also compete for global markets. For years, the USA has been the No. 1 global trader — one reason why the bulk of the world’s monetary reserves (money put aside for settling international debts) is now in dollars. Germany and its EU neighbors hope that the euro, backed by their combined GDPs, will become Europe’s "dollar."

Looking Ahead. Will the EU expand successfully? Will Germany’s decision to support the euro be validated? One test lies in how the EU's European Central Bank (ECB) handles interest rates: Setting them too low would risk inflation. Setting them too high could trigger business cutbacks. Germany is betting that the ECB will continue to strike the right balance, that the euro will succeed, and that the result will be a more secure, prosperous Europe. After all, Germany has devoted half a century to that goal.... You can read more about the role of the ECB in this article:
     Drozdiak, William. "Grand Opening for Europe’s Central Bank." The Washington Post. July 1, 1998. Page C13.