Getting to grips with ups and downs of single currency

I LOST one billion ecus on Tuesday (£800 million to you and me), in less time than it would have taken to read out the charges…

I LOST one billion ecus on Tuesday (£800 million to you and me), in less time than it would have taken to read out the charges against Nick Leeson.

But, towards the end, I was getting the hang of it. Really. Give me another billion or two and I might even break even. Trading on the foreign exchange markets is really a doddle.

I'm a "market maker" - not as sexy as an arbitrager, but, as the man in Monty Python said, a career move from accounting to trapeze artist may be a bit of a long step. "How about trying banking on the way?"

The Reuter screen says there's been an earthquake in Palermo. Sell lire. A strike settled in Berlin. Buy marks. The phone rings. Another yen hungry client. Demand heavy. What price can I get him and still make a bob?

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And the thing about virtual trading is they can only send you to virtual jail - it's called the Irish Times Brussels office.

The bank of computer trading simulators was the final lap at an exhibition this week in, Brussels laid on by the European Commission to chart the history of money as part of its contribution to the round table on selling the idea of the single currency.

It's no mean feat, making economic history entertaining. But, somehow, the enthusiasm of our guide and a cleverly balanced collection of exhibits that ranged from Greek and Roman coins to medieval touchstones, and then on to a demonstration of intelligent ATM cards told the story most eloquently.

The exhibition will tour, I am told, if it gets the thumbs up from the press. Well, here's one thumb.

The central concern of most of the participants at the round table was the fear that in the public mind the single currency has become associated with financial stringency, cutbacks, and unemployment. No amount of information that the convergence criteria are good for us anyway will convince.

Much too late in the day Jacques Delors, the Commission's former president, came to the meeting to admit that the Commission and EU leaders had made a mistake to leave unemployment out of the criteria, echoing a criticism made of him and member states from the left for some time.

It's not that low unemployment was a technical necessity for the stability, of a single currency - a point proved eloquently by Ireland - but its omission represents a failure by the leaders to accept the essentially political character of economic decisions. To leave it out sent all the wrong signals. After all, even economists recognise the real economic weight of consumer confidence.

The other important theme to emerge from the conference was the reiteration, particularly by the financial sector, of the need for greater certainty about numbers, timescales and the modalities of the transition to the euro. They need the euro pessimistic jitters we have been seeing in recent days like a hole in the head.

Perhaps, though, the week's most important novel contribution to the euro debate was that of the British Chancellor, Kenneth Clarke. His letter to the Italian EU presidency raises genuine problems associated with cohabitation, the relationship between the euro "ins" and "outs".

He rules out another Exchange Rate Mechanism for those on the outside - it should not be beyond the wit of negotiators to come up with a set of disciplines that will ensure broad currency stability without fixed rates.

Problems such as overlapping mandates for management of exchange rate policy between the European Central Bank and; the Council of Finance Ministers are genuine, but clearly solvable with give and take - as is representation at the International Monetary Fund.

Fears that the "ins" will vote as a block, splitting the council, are belied by the history of shifting voting alliances that has been the hallmark - and many say the real strength - of the council.

Most interestingly and genuinely problematic, however, is Mr Clarke's concern that once the euro is created, the possibility of others joining will become increasingly difficult because of the natural dynamic that the new currency will engender.

He warns that the successful countries of the inner group may be tempted to set even tighter budget disciplines among themselves, upping the ante for late comers. This is being discussed in the form of the German Finance Minister's Stability Pact.

Alternatively, "for some economies the operation of the markets may tend to accentuate the divisions between them and those already inside the euro area and make them harder to bridge".

Reading between the lines, Mr Clarke is saying that euro membership is likely to bring substantial benefits not available to those outside, and that the markets are likely to reward such countries.

Relative convergence would be set back by virtue of the success of the "ins". An unusual admission for a British Tory.

Patrick Smyth

Patrick Smyth

Patrick Smyth is former Europe editor of The Irish Times