Year XXXIII, 1991, Number 2 - Page 124
TheECU and the Beginning of the New World Economic Order
ALFONSO JOZZO
Europe is now on the threshold of Monetary Union: if the outcome of the current intergovernmental conference is positive – as it appears it will be after the implicit approval by the United Kingdom of the results hitherto achieved – and a new Treaty is drawn up concerning the establishment, within 3 to 5 years, of a single central bank, even if a federal one, and the adoption of the ECU as a single currency, radical reform of international economic relations will be started.
We can therefore ask whether a new world economic order will begin with the ECU and try to identify the impact of this radical reform of the international monetary system, a reform which may be more important than that brought about after World War II when the International Monetary Fund was established at Bretton Woods.
The “South” and ecology: the new challenges.
At present the world economy is facing two big challenges, which call for a different use of resources compared with the situation in the last decades:
1) it is absolutely necessary to ensure the development of the “South” of the world and reduce the gap with the “‘North”, in order to avoid the creation of two opposing blocs, to control migration, to spread democracy and, ultimately, to make possible the establishment of world institutions capable of offering safety and wealth to all people;
2) the preservation of the ecological balance calls for important changes in those institutions in charge of the functioning of the economic system, in order to avoid using land improperly, with consequent diseconomies.
The rational utilization of capital is essential, considering the large needs which should be met (development of the “South”, ecological balance) and of the economic system’s limited capacity to increase the availability of capital enormously. The new situation which characterizes the world economy requires a return to the concept of capital “rarity” – which is the foundation of economics itself – and ensuring the world market works efficiently by allocating resources where they will be used most productively, thus removing the institutional limits which at present are directing them towards waste.
In particular the current trend which sends the capitals towards the “North” of the world because of the greater “political” risk for private investments in the “South” should be altered, in order to make the most of the productive potential of these areas, where the very low cost labour factor should be employed locally, instead of giving rise to unwelcome migratory flows.
On the other hand, a supranational “ecological” system of taxation should be set up soon, in order to direct investment towards those fields which allow the preservation of the environment and the ecological balance.
A new international monetary system.
The first step to achieve these targets is reform of the international monetary system and the presence of a stable “world currency” which does not seriously affect, because of inflation, the functioning of the world market.
In fact, it is a question of restoring and extending over the whole world the conditions of monetary stability set up at Bretton Woods – with the mechanisms of the International Monetary Fund and of the dollar’s convertibility into gold – and of support for European reconstruction through the intervention of the World Bank according to the Marshall Plan.
The ECU will give the world a monetary system based on stability and avoid the inflationary “manipulation” of the world economy by countries or specific interests, since it will only be able to become an international currency in competition with the dollar if it shows remarkable degrees of stability, so meeting the requirements of international investors eager to avoid seeing their capital eroded by inflation.
The same institutional structure linked to the issue of the ECU – an independent central bank – will strengthen this trend, making the ECU a currency issued by a ‘‘true’’ federation where the power of the political authorities to affect the issue of currency is minimal.
With the establishment of European central bank the control of inflation will be strengthened, and the mechanisms of Economic and Monetary Union will prevent the formation of large public deficits both on a European and a national scale, thus increasing investment capital. Simultaneously the United States will be forced, because of ECU competition with the dollar, to stabilize its currency, curbing inflation and drastically reducing the absorption of external resources in order to finance a level of consumption inconsistent with resources produced domestically.
The fundamental reform of the international monetary system caused by the ECU will allow an increase in capital availability worldwide, and will make possible the financing of plans for ecological reconversion, and for the development of the “South”, which are unthinkable at present.
A development plan for the “South”.
In particular, during an initial stage, the ECU as a world currency competing with the dollar will generate a high “real” (that is to say net of inflation) interest rate, with the consequent transfer of income from users to holders of capital in all its forms, including exhaustible commodities (from oil to wood). If the purchasing power of the world currency is safeguarded against inflation, debtor countries will be compelled to transfer wealth to creditor countries and the cycle of recent decades, during which the “South” has been financing the “North”, will be interrupted.
The shift will not be easy, because all economies will have to conform to the new conditions predominant on the world market. But, unlike what happened at the beginning of the Seventies, when the inflationary cycle triggered by the United States with the breakdown of the Bretton Woods system concentrated the recycling of the world surplus there, it will be possible to use the opportunity to reform fundamentally all institutional and economic frameworks, both in the “North” and in the “South”. On the other hand, it is quite natural that the aforementioned world inflationary cycle imposed itself following the failure of the Werner Plan, which was the first attempt to achieve European Monetary Union.
Capital can be directed towards those areas where its use is more productive (the “South”), only if the above-mentioned “political” risk is overcome.
As happened to western economies when the Marshall Plan came into effect, exchanges and investments in “South” countries need to be carried out in the first place, at least within the limits of economic regional agreements with a minimum of viability and linked up – as was then Western Europe – to a driving economic pole such as the European Community, the United States or Japan. Only in this case economic activity in “South” countries will turn out to be efficient and competitive, even if technologies and production methods involving a lower supply of capital for each employee are used.
The intervention of institutions, inspired by that which enabled European reconstruction, is therefore the federalists’ next target in order to proceed towards the new world economic order: the International Monetary Fund, the World Bank for Reconstruction and Development, the European Organization for Economic Co-operation, the European Union of Payments, the European Community are the examples to refer to.
The current situation of Latin America, Africa and Asia is undoubtedly different: new ideas are needed, in order to set up new institutional models able to allow the reunification of the “North” and “South” of the world.
At the point of achieving the Economic and Monetary Union of Europe, culminating the process started half a century ago, the examination of the first stage of this undertaking might not only give us the ideal stimulus to deal with these new tasks, but also some suggestions and examples.
