During the run up to the euro, I used to complain that our leaders reminded me of the World War I generals, trying to win the battle of the euro by frontal assault, regardless of casualties. I was wrong to think that this attempt would fail. My brief as an economist is now to spell out the policies of the different member states needed for it to be a success and to assess the likelihood that these conditions will be fulfilled.
Success in the launching of a new currency has many dimensions. The first is keeping the legacy of the Deutschmark intact. The euro is having such an auspicious start because its birth has coincided with a continental boom and, more fundamentally, because Germany generously donated its monetary goodwill to its euro partners. The question now is whether the European Central Bank will do its duty from the very beginning and over the next two or three decades, until its reputation for issuing an inflation-free money is solidly established.
The ECB seems to have decided that it will use German methods to track and control money creation. This means setting M1 and M3 growth targets, using interest rates to feed or starve the interbank market, and resorting to cash ratios when stronger action is needed.