European Central Bank

Uncertain future seen with euro

PUBLISHED : Saturday, 11 July, 1998, 12:00am
UPDATED : Saturday, 11 July, 1998, 12:00am

A leading academic has expressed reservations about the supposed positive effects of the single European currency on Asia, suggesting it may be years before any im pact is seen in the region.

Professor Edward Chen, president of Lingnan College, said yesterday the euro could have an adverse impact on Asia in the short term.

'There may be some industrial dislocation, there might be some distortions or structural unemployment. We cannot really be too optimistic about the next three years, everything is relatively uncertain,' he said at a European Monetary Union (EMU) roadshow.

There was also a danger of greater trade insularity within Europe which could lead to a fall in Asian exports to European Union members.

Professor Chen believed the impact on financial markets would be gradual rather than rapid, despite estimates that as much as US$700 billion of funds could be switched into euros from US dollars and the yen after trading starts next January.

The Asian response would be especially cautious because of investors' 'special attachment to the US dollar', he said.

'You have to accept that US technical markets are broader, deeper and more resilient in terms of liquidity. The euro has a long way to go,' Professor Chen said.

The governor of the Bank of France and future president of the European Central Bank, Jean-Claude Trichet, said EMU was based on 'deep and solid conceptual economic foundations'.

While admitting that structural impediments such as acute unemployment were affecting the EU, Mr Trichet countered criticisms of the new currency, claiming it would foster a better international monetary balance.