US Treasury: Emu could have positive effect

In remarks that conveyed an upbeat message from the US administration to European governments preparing for Emu, Mr Summers, the architect of much of the US's global economic policy, played down previous concerns expressed by US officials. They were worried that Emu would present economic problems for Europe that could spill over to the rest of the world.

"The magnitude of the change involved is cause for concern that something could go wrong, but not reason to believe something will go wrong," Mr Summers told a Senate budget committee hearing on the implications of Emu.

Describing the start of monetary union on January 1 1999 as "the biggest change in the international monetary system since the breakdown of the Bretton Woods system in the early 1970s", Mr Summers said: "If Emu works for Europe it will work for the United States. The more the single currency helps Europe develop a robust and healthy economy that is open to world markets, the more welcome the project will be."

His remarks reflect the belated realisation by US officials that Emu is a near-certainty and that the US will soon be dealing with a new form of economic government in Europe.

Mr Summers said Emu raised issues about the role of the Group of Seven leading industrialised countries, and about Europe's participation in other international organisations. "We look forward to engaging with the EU on these matters next year after the selection of the first members," he said.

Senior US government officials have privately expressed doubts about whether Emu would, and should, proceed as planned. They have noted the possibility that the pressure of irrevocably fixed exchange rates might lead to economic dislocations throughout the Emu bloc. Earlier this year, Mr Summers warned European governments that radical structural change would be necessary to ensure Emu worked.

But, although he repeated this caution yesterday, he said it was "encouraging to hear voices across the European political spectrum acknowledge that Emu requires structural reforms, and that Emu should push policies in that direction".

The US was not threatened by the prospect of a successful Emu, Mr Summers added. Senator Bill Frist, a Republican member of the committee, voiced widespread concern that a strong euro would produce a global shift in the currency allocations of investors and central banks away from US dollars, potentially forcing increases in US interest rates.

But Mr Summers said he was confident the dollar would remain the number one world reserve currency. The euro would take time to establish its credibility among investors, and, even when it did, the liquidity of US capital markets ensured that the dollar would remain the currency of choice.