Nobel Laureate Robert Mundell
The euro officially entered circulation on Jan. 1, but economists, including Columbia's Robert Mundell, began laying the intellectual groundwork for the currency and working toward its adoption more than 40 years ago. However, Mundell maintained the idea of a common European currency goes back even further.
"The idea for a European currency goes back many centuries, and no one should feel they own the idea or the credit for its coming into being," said Mundell, who captured the Nobel Prize for Economics in 1999. "A long line of great Europeans,Winston Churchill, Jean Monnet, Konrad Adenauer and Luigi Einaudi and a few others, conceived and promoted the idea of European integration. The coming of the euro is but another important step toward the realization of their prescient dreams."
Over the next two months the euro will displace currencies in the 12 participating countries, which include Ireland, Spain, Finland and Germany. The changeover began in 1999, when these countries turned control of their monetary policy to the European Central Bank and made it the official currency of all inter-bank transactions. On Jan. 1, 2002, the euro transformed from virtual to real currency. Mundell said this two-year period has eased the transition from national currencies to the euro.
"The 1999 changeover to the euro in the electronic market resulted in a spectacular convergence of interest rates in the euro area and an elimination of speculative capital movements that before had been very troublesome," said Mundell, who was appointed University Professor by Columbia's Trustees in March 2001. "The changeover to the physical euro has gone surprisingly smoothly, and while it is too soon to say, Italians who I know quite well love it. It is a novelty that is like a new game." Mundell has spent significant time in Italy. He is in the process of renovating a second home, Santa Colomba, a 500-year-old villa in Tuscany near Siena.
There are reports of retail stores running out of the euro and of consumers and retailers in participating countries having difficulty figuring out conversion rates from their national currencies to the euro. But Mundell said he doesn't expect its introduction to create major problems.
"The major dangers of the changeover are past," he added. "A future danger could arise if labor unions mistakenly think that they are still bargaining for wages in national currencies that can be devalued, but I believe that danger now is small." In fact, Mundell contended the euro will yield significant advantages for both Europe and the global community.
"It will be a much more efficient money for Europeans," he said. "Not only will they be able to compare prices across the continent, but they will possess a world-class money, second in importance in the world, only to the dollar.
"For the world community, it means the simplicity of dealing with one instead of 12 currencies in Europe," Mundell added. "For American corporations it is a godsend to be able to keep books in one set of accounts and to make investment decisions without having to worry about exchange rate changes. For the rest of the world, it means that there is another 'island of price stability' in addition to the dollar area, in which they can put their capital and use to value their investments. In my judgment there is not a single country in the world that will lose from the advent of the euro."
Mundell was awarded the Nobel Prize for his work leading to the adoption of the euro and for his contributions to the ideas behind "supply-side" tax cuts, which were adopted during the Reagan administration.
Mundell's books include "The International Monetary System: Conflict and Reform" (Private Planning Association of Canada,1965), "Man and Economics"(McGraw-Hill, 1968), "International Economics" (Macmillan, 1968) and "Monetary Theory: Interest, Inflation and Growth in the World Economy" (Goodyear, 1971).
Columbia has a distinguished tradition in economics, with its faculty winning three Nobel Prizes in economics in the past six years. The late William S. Vickrey was awarded the Nobel Prize in economics in 1996 and Joseph Stiglitz, also a professor at the Columbia School of Business and the School of International and Public Affairs, won the prize in 2001.