Europeans are celebrating the euro’s 10th birthday. Yet one cannot forget, as the European Commission acknowledges, that Europe “still punches below its economic weight” in international forums. This may seem a strange statement in the light of the euro’s success in establishing itself as the world’s second international currency. It is now the next most actively traded currency in foreign exchange markets worldwide after the dollar and the most frequently used currency for international bond issues in London and elsewhere. European monetary union countries enjoy a much improved international liquidity position and the privilege of financing their deficits with Europe’s own money. However, despite its achievements, in particular its recent strength against the dollar, the euro cannot match the greenback’s dominance.

It is true that large payments deficits and an overly relaxed fiscal policy, coupled with the recent weakness of the dollar and America’s financial crisis, have dented investors’ confidence in the dollar and the credibility of the US authorities to provide a stable monetary anchor. On the other hand, it is hard to claim that a new monetary hegemony has yet emerged. The global system does not yet rest on two equal pillars, as many euro enthusiasts have long hoped. The eurozone has been largely a passive participant in global payments developments and remains a weak force in monetary diplomacy. Emu has proved no match for the American heavyweight. The euro is still not ready for prime time.