Home › Features › Essays › The Dollar and the Euro

The Dollar and the Euro

C. Fred Bergsten
July/August 1997
Summary -- 

With the creation of a single European currency, the dollar will have its first real competitor since it surpassed the pound sterling as the globe's dominant currency. As much as $1 trillion of international investment may shift from dollars to euros. The political impact of the euro will be just as great. Europe could try to export its high unemployment by undervaluing the euro's initial exchange rate. Protectionist battles could break out. The euro's arrival need not cause instability in world markets, but it will probably cause volatility. A smooth transition to a stable dollar and euro system will require a quantum leap in transatlantic cooperation.

C. Fred Bergsten is Director of the Institute for International Economics. He was Assistant Secretary of the Treasury for International Affairs from 1977 to 1981 and Assistant to the National Security Council for International Economic Affairs from 1969 to 1971.

We're sorry, but Foreign Affairs does not have the copyright to display this article online.

Related

Comment, Mar/Apr 2005
Mind the Gap
Robert C. Pozen

With the EU's addition of ten new members and a likely slowdown in U.S. productivity growth, Europe has a chance to overtake the U.S. economy. To actually do so, however, it must boost its competitiveness with some much-needed reforms.

Read
Essay, Spring 1988
The Dollar and the Defense of the West
David Calleo, Harold van B. Cleveland and Leonard Silk

US economic problems require defence spending cuts, since civilian programmes cannot be cut nor taxes raised, and these issues thus have a geopolitical dimension. Europe must therefore assume primary responsibility for its own defence, thus "sustaining the Pax Americana from which all have profited so handsomely".

Read
Essay, Oct 1965
Spain and the E.E.C.
Laureano López Rodó

As part of this effort, conversations have been started in Brussels, on the initiative of the Spanish Government, in order to study the problems faced by the Spanish economy as a result of the operation of the Common Market. On February 9 last, the E.E.C. authorities presented a questionnaire to the Spanish Government asking specifically about important aspects of the relations between the Six and Spain which had been studied in a Spanish report of December 9, 1964. The Spanish Government's answer to the questionnaire was handed to the E.E.C. in June.

Read
Cover image

In the Magazine

November/December 2009, 6, 88
Essay
The Dollar and the Deficits
C. Fred Bergsten

The global economic crisis has revealed the folly of large U.S. budget and trade deficits, as well as of the strong dollar that makes them possible. If it is serious about recovery, the United States must balance the budget, stimulate private saving, and embrace a declining dollar.
Read