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The European Monetary Union (EMU) was created last January 1. Its eleven members, all large economies except the United Kingdom, have a fixed exchange rate among their currencies and a single monetary policy set by the European Central Bank in Frankfurt. By July 1, 2002, there will be a single currency, the euro. The change is immensely significant for world prosperity and stability. "Euroland," a favorite name among Germans, may become as politically and militarily powerful as the United States. For the EMU to fulfill its potential, however, tough questions must be answered. What will be the effect of the EMU on European economic growth? What will be the effect on European integration? A successful EMU could lead to a Europe at least as loosely confederal, if not more tightly federal -- that is its real potential. Realization of the potential will depend on wise policy, particularly on relaxation of the current stringent economic orthodoxy inherited from the 1970s and 1980s. For the United States, EMU success will create a powerful new competitor but also a partner to share the burden of world leadership.

Originally published in: The Atlantic Monthly, November 1999, pp. 36-40.

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