Euro no threat to identity
As she sits in the cross fire of cameras and behind a sea of microphones answering questions about events in the world of money, Sirkka Hämäläinen seems cool, businesslike, expert, uncontradictable, and in the view of some even intimidating. Sitting in a leather chair in a private function room at a staid gentlemen's club, she easily smiles and laughs, and there is a glint of humour in her eye. Sirkka Hämäläinen is a woman at the core of the new European currency, with a seat on the board of the European Central Bank in Frankfurt.
Dr. Sirkka Hämäläinen, 59, is a solid veteran of the banking world. A manager at the Bank of Finland from 1982 to 1991, on the board from 1991 and Governor from 1995 until spring 1998, when she became a member of the first board of the European Central Bank. There she is responsible for marketing functions and developing the new organisation's operations. Key decisions at the ECB will be taken by a 17-member council comprising the governors of the central banks of the participating countries and the six members of the ECB board. Each has one vote and decisions are by simple majority. The board does the preliminary work on matters coming up for decision and outlines them to the council, which meets in Frankfurt every other week.
The transition to monetary union is taking place in stages from 1.1.1999 onwards. On that date, the exchange rates of the participating countries' currencies relative to the euro were fixed and bourses changed over to the euro. Euro banknotes and coins will go into circulation on 1.1.2002 and in July of the same year the euro will completely replace the national currencies as a medium of payment.
The ECP is shared by the 11 countries - Germany, France, Italy, Spain, the Netherlands, Belgium, Luxembourg, Austria, Portugal, Ireland and Finland - that have entered the third stage of economic and monetary union (EMU). Three EU members - the UK, Denmark and Sweden - have decided not to join for the present.
Cosmopolitan atmosphere polishes
There were about 500 employees at the ECB headquarters in Frankfurt in autumn 1998 and more are constantly arriving from different member states, different cultures. "With such a mixture of nationalities, the people there polish each other," is how Hämäläinen describes the atmosphere at the new bank.
Aligning different traditions and practices towards a shared goal requires everyone to be able to accept compromises. "Big countries have had a stronger desire to retain their existing systems," says Hämäläinen. "Small ones are more realistic and prepared to adapt. The principle in the preparatory work has been, on the one hand, harmonisation and, on the other, to ensure continuity. No country should suffer too-big or too-rapid changes. There has been a desire to preserve continuity for at least the transitional period. Of course, harmonisation is the ultimate goal and that will happen with the markets." The extent to which seamless money flows and the shared tone that must gradually emerge in the markets will be reflected in everyday life remains to be seen.
The euro will be no minor currency. Hämäläinen's assessment is that it will eventually be of almost exactly the same calibre as the dollar given that the European Union's economy is roughly the same size as that of the USA. But we shall have to wait and see how much confidence the euro gains before we can predict how extensively it will be used in international markets. The dollar has been used as the main reserve and international currency for a long time, but the speculation is that it will eventually lose ground.
Price stability the main task
According to the Maastricht Treaty, a central task of the ECB is to maintain price stability. Some experts have expressed doubts that the new central bank's interest policy, designed to ensure stability, will also have a braking effect on the economic growth that has now gotten under way in Europe. Hämäläinen dismisses those doubts.
"Monetary policy will not be used to make the euro too strong. That exchange rates are influenced by many different factors and expectations is a different matter. But short-lived fluctuations in exchange rates have nothing to do with inflation. Over the longer term one must take into consideration that inflationary influences can also be introduced through the development of external trade prices, and these influences must be monitored. In principle and over the long term, inflation is a monetary phenomenon, a consequence of monetary policy. In the short term, it is influenced by many factors: other aspects of economic policy, such as in relation to finance, labour-market settlements, etc. If other economic policy deviates a lot from a path of curbing inflation, monetary policy has to balance the situation."
Suspicions have also been voiced that the big countries will herd the small ones - such as Finland - like sheep. Hämäläinen's eyes flash and she raps the table with her knuckles.
"No, not at all. Where the small countries are concerned it is a matter of above all skill and studying matters. Then they can certainly influence things. I repeat: the Governor of the Bank of Finland has one vote in the council, exactly the same as the head of the Bundesbank. It is difficult to see how the interests of the small could be different from those of the bigger. Interests that all share are effectively functioning markets and systems as well as stability in the value of the currency."
The Finns have been quick to adjust to EMU membership. At the end of 1997 it had more opponents than supporters, but an opinion poll in autumn 1998 indicated 53 per cent for and only 31 per cent against.
No more exchange-rate risks
That anything has changed is unlikely to be very obvious to the ordinary citizen in the EMU countries in the course of 1999. Their national currencies will remain alongside the euro until 2002. There will be one difference, however: their currencies' exchange rates will be absolutely and permanently frozen relative to the euro. There will be no more exchange-rate risks. This opens up a lot of new opportunities, for which large companies have been carefully preparing. Private persons will be slower to learn the ropes in the new situation, but will learn nonetheless. "Even now, a Finn or a Dutchman can deposit money in or take a loan from a bank in Germany - or anywhere," she mentions as an example. "The elimination of exchange-rate fluctuations will make the situation as regards competition quite different. Customers will be able to make real comparisons between the advantages and services that banks throughout the euro area offer. It has been estimated that the disappearance of currency borders will be felt first in the prices of larger items like cars. Price differences between member states will certainly narrow. But the tax harmonisation associated with this is a matter for finance ministers and has nothing to do with the ECB."
During the pangs of the monetary union's birth, people's emotional attachment to their national currencies was much discussed in Finland as elsewhere. The Finnish markka was talked of in quavering voices as though it were a national flag that had to be fought for tooth and nail. Hämäläinen nods, smiles and roots in her handbag until she finds a treasure on a golden chain.
"This is what I got from my colleagues when I left the Bank of Finland. It is the first gold coin struck in Finland, in 1860. It is very valuable and I enjoy keeping it as a memento. After all, it has had a strong significance. Finland was then part of the Russian Empire. Having our own money strengthened our national identity; after all, at the same time we were acquiring all of the national institutions that prepared us for future independence. Yes, indeed, money has a powerful symbolic value. Yet I do not believe that the essence of being Finnish has anything to do with the markka or the euro. We preserved our national character for 600 years as part of Sweden and for over a century under Russian rule, and we will certainly endure as Europeans, too."