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Euro looms on the horizon
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May 1, 1998: 3:29 p.m. ET
European monetary union due to get rubber stamp, but not without snags
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LONDON (CNNfn) - History will be made in Brussels Saturday as most of the European Union, excluding Britain and three other countries, formally adopts a single currency, signing onto the Euro and signing the death warrant for their own currencies.
Although the exchange rates linking the 11 signatory currencies already have been fixed, the summit still has one last dispute to resolve. France and Germany are bitterly divided over who should be chosen as president of the European Central Bank, responsible for setting monetary policy for the entire European Union.
Neither side appears to be backing down, leading some to suggest splitting the eight-year term in two, even though Jacques Santer, president of the European Commission, says that's a bad idea.
"There could be some compromise, but I think we have to stick to the provisions of the treaty, and the provisions of the treaty are saying that the president is appointed for a mandate of eight years time," says Santer. "I think it would be very damaging for the European Central Bank if there would be a splitting of this mandate."
The Brussels summit this weekend is a major milestone on the road to Maastricht, the dream of a single market that was inspired a half-century ago in a Europe ravaged by World War II.
Historic union
Analysts say the impact of the Euro will be historic. It's likely to become a reserve currency like the dollar and will impact business as well as trade.
"I don't think you will see or have seen an economic coming together as big as this," says Sharda Persaud, EMU economist at Paribas. "This is really going to create in population terms, in GDP terms a currency block that is as big as the United States, if not bigger, and that really is a force to be reckoned with."
"The exchange rate between the dollar and the Euro will be a vital price mechanism for U.S. exports, European exports and imports into both those countries as well," explains Stephen Yorks, political analyst at SBC Warburg Dillon Reed. "It will probably become the most important price in the world."
On the strength of the initial 11 signatories alone, the combined European economy will boast a gross national product of $6.9 trillion, comparable to that of the United States.
"Interest rates, I think, will start to fall in the U.S. in 1999, suggesting that the Euro will outperform the dollar in the early stages," says Jeremy Stretch, currency strategist at NatWest Global Financial Markets.
Competition with the Euro could erode the dollar's coveted safe haven status, leaving investors with an alternative currency where they can park their money in times of trouble. In turn, a smaller appetite for the dollar could drive up the cost of borrowing for U.S. companies, effectively raising interest rates.
Summit pro forma
The outcome of the Brussels summit was planned years ago, and Saturday's meeting is largely a symbolic event in which officials will lend their rubber-stamp approval to the mechanisms of European Monetary Union (EMU).
However, few think the transition to the Euro will move as smoothly as the European commissioners hope. There still are many structural impediments to union in Europe's economy, causing Britain, Sweden and others to steer clear of EMU for now.
For example, the heated argument over the bank presidency remains to be settled. The leading contender, backed by Germany, is Wim Duisenberg of the Netherlands, but Paris is still pushing its own Bank of France governor, Jean-Claude Trichet.
Analysts say a compromise is inevitable and warn that it won't be the first or the last for the EU. 
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