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iv.98

chapter for Colin Crouch, ed., After the Euro: Shaping Institutions for Governance in the Wake of European Monetary Union (Oxford: Oxford University Press, 1999)

Stephen Clarkson

What Europe May Learn from North America's Preference for National Currency Sovereignty⁽¹⁾

Whatever Europe has learned from America over the centuries when the "new" world has stood as a beacon to the old, it seems hardly conceivable that its great experiment in monetary union has classes to take from across the Atlantic Ocean on currency policy. Indeed Charles Goodhart, the respected scholar of currency union, has stated that "the combination of a single market and floating exchange rates is untenable"(Goodhart 1995: 478) implying that it is the North American Free Trade Agreement that has lessons to ingest form Europe, not the reverse.

Few doubt the overall benefits of a single market within the EC, but there is reason to doubt that a single market with no exchange controls, and with free movement of factors, will be compatible with the ability of its constituent members to vary exchange rates autonomously and sharply.(Goodhart 1995: 478) In short Goodhart believes North America's three members will not long be able to enjoy the luxury of separate national currencies if they want to secure their continental market.

We thus start our reflection with a paradox. The members of NAFTA arguably comprise a more integrated economy than that of the European Union -- whether integration is measured by the hard indicators of capital and even trade flows⁽²⁾ or by the softer measures of corporate struct (Blank 1995: 5-72) and cultural homogeneity.⁽³⁾ Nevertheless, despite the historic steps taken in the past decade to harmonize trade and investment policy through economic integration agreements painfully negotiated first between Canada and the United States and then with Mexico, these partners show no sign of taking Goodhart's admonition seriously. No serious consideration has been given to the introduction of a North American Monetary Union (NAMU) with a continental bank that might in some way parallel the European Monetary Union (EMU) and the European Central Bank. Exploring this paradox should not just shed light on the specific features of North American integration but also bring into sharper relief some of its implications for the institutionalization of the EMU.

As a subject for analysis, currency union appears to belong squarely in the domain of economics, but as this conference's title suggests, politics cannot long be kept out of the discussion. Economists may have framed the debate in the academic literature, but it is politicians who have to take the legislative steps necessary for bringing the scholars' abstractions to concrete fruition. And, if the monetary union project comes to grief, it is in the political domain that the pigeons will come home to roost. Accordingly, we will first look at the somewhat arcane debate in the economics literature about currency policy options in North America before considering the more political arguments based on national interest. This will let us examine the relevance of the one continent's experience for the institutional deficits likely to result from monetary union in the other.

I The View from Economics

As the first non-conforming member of the Bretton Woods club -- Canada let its dollar float as early as 1950⁽⁴⁾ as can be seen in Figure 1 -- it is not surprising that orthodox Canadian economists developed some

insert Figure 1: Canadian Real Exchange Rate in terms of US Dollars (1950-1998)

Source: Bank of Canada

comparative advantage in debating the merits of a floating versus a fixed exchange rate. There are five principal arguments in favour of fixing (and so against floating) the Canadian exchange rate -- and joining a North American currency union would simply be an extreme version of such pegging.

Fixer 1. Fluctuations of the exchange rate have had damaging economic effects in Canada.

Fx 2. Price stability would result from pegging a weaker Canadian to a stronger and more stable American coinage.

Fx 3. Adopting the American dollar would generate huge savings in debt servicing due to the lower interest rates that Canadian governments would have to pay.

Fx 4. Sheltering Canada's currency from speculative attacks provoked by intemperate mood changes among callow bond traders would reduce uncertainty for entrepreneurs and so increase both trade and investment flows.

Fx 5. Exporters, importers, and tourists would save the transaction costs involved in having to change from one currency to the other -- a significant factor in an economy whose bilateral trade with the United States runs at $1 billion per day.⁽⁵⁾

Each of these arguments put forward by the faction we will call the Fixers in favour of a pegged currency or a currency union has been challenged by the school we might name the Floaters. To wit::

Fl(oater) 1. Evidence that currency fluctuations have been damaging to the Canadian economy is inadequate.⁽⁶⁾

Fl 2. The price stability argument is not so much conjectural as conjunctural: recently Canada has achieved lower inflation rates than the US so that linking up with the Fed at this historical moment would entail taking on higher inflation rates.⁽⁷⁾ See Figure 2.

insert Figure 2: Canadian and American Inflation Rates as Reflected in the Consumer Price Index (1950-1998)

Source: Bank of Canada

Fl 3. By the same logic Canada, with its lower short-term interest rates, would currently suffer higher, not lower debt-servicing costs by adjusting to American levels.⁽⁸⁾ See Figure 3 and 4.

insert Figure 3: Canadian and American Short-term Interest Rates (1950-1998)

Source: Bank of Canada

insert Figure 4: Canadian and American Long-term Interest Rates (1950-1998)

Source: Bank of Canada

Fl 4. Historically, speculative pressures were a greater concern for Canada under the Bretton Woods system of fixed but adjustable exchange rates. Nowadays bracing oneself against possible speculative attack is more of a problem for a badly than a well managed economy, though policy makers' awareness of their vulnerability to global capital markets' capricious moods seems to have mitigated the problem considerably.⁽⁹⁾ The prospect of currency meltdown is more pressing for economies emerging from state planning systems or hyperinflation than for relatively normal systems.

Fl 5. Transaction costs cannot be argued away but they can be put in perspective. The question becomes whether eliminating these charges is worth the costs involved in giving up currency flexibility.

It is in praise of this flexibility that the Floaters' logic is more compelling, particularly when their analysis focuses on how best to respond to shocks.

Fl 6. Economies are subject to major unanticipated disturbances that are either economic or political in nature, and that originate both from either inside or from outside the system. They can, for instance, be victims of supply shocks in which the availability of a needed commodity can be blocked by political cataclysm (civil war) or natural disaster (flood or drought), or its price can fluctuate widely as did that of petroleum in the OPEC crises of 1973 and 1979. Demand shocks can be equally disruptive, particularly for a resource exporting country like Canada. As foreign markets pass up and down the curve of the business cycle their import needs oscillate, causing shocks to the staple-exporting economy. The gyration in world prices for individual commodities produced by changing demand for, say, wheat can spell boom or bust for monocultural regional economies such as the Canadian prairie provinces which are heavily dependent on the export of a few staples. The jagged curve of Canada's terms of trade reflects these commodity price fluctuations.⁽¹⁰⁾ See Figure 5. According to the Floaters, a flexible

insert Figure 5: Canadian Terms of Trade as Expressed by the Commodity Price Index (1950-1998)

Source: Bank of Canada's commodity price index (in US $) divided by the US GDP deflator

exchange rate remains an important device for governments trying to cope with shocks, whether generated internally or externally.(Lafrance and Van Norden 1994: 58) This currency elasticity affords a degree of policy independence which is not worth sacrificing in order to gain the relatively minor advantages offered by pegging.

Enlarging the field of vision from Canada alone to Canada and the United States, Floaters have little trouble showing that the North America defined by these two economies does not match their strict criteria for what should constitute an optimal currency zone.⁽¹¹⁾ Shocks in the US economy are distinct from shocks in Canada. Being a net importer rather than an exporter of resources is but one index of the US economy's different industrial structure, and helps to explain why it responds differently from the Canadian economy to the same external shocks. And if economic regions react asymmetrically to such disturbances they, by definition, do not form an optimal zone for the purposes of forming a currency union.(Lafrance and van Norden 1994: 52) For the area comprised by Canada plus the United States we come, in short, to another paradox. The Canadian economists who have been the most powerful advocates of economic integration between the two countries have all defended the notion of a floating Canadian dollar in the name of national, macro-economic autonomy, despite Canada itself not constituting an optimal currency zone -- Harry Johnson (1970), Harry Eastman (1971), Ronald Wonnacott (1987), David Laidler (1990) Richard Lipsey (1992), and Douglas Purvis (1992) .

Fl 7. The Floaters' argument about shock therapy goes further. A government's loss of exchange-rate flexibility following incorporaon in a currency union raises the question of what alternative policy tools are available for helping an economy adjust to major disturbances. With its central bank neutralized as the prime economic shock absorber, the country's treasury has to bear an increased load. This imposes a greater strain on fiscal policy which, has, in any case, become a counter-productive tool of macro-economic adjustment as capital becomes increasingly footloose. Imperfect or not, a currency union member's capacity to alter tax rates and levels of public spending becomes its last resort when facing substantial economic disruptions.

Fl 8. Beyond the policy argument in favour of flexibility, there is the practical consideration of what price would have to be paid to join a currency union. The immediate cost to the smaller economy in joining the larger currency zone is presumed by Floaters to be substantial since the former would have no choice but to accept the high conversion rate for pegging its currency that would be dictated by the latter. Italy's experience in gaining re-entry into the Exchange Rate Mechanism in 1996 reminds us that the demandeur typically has a weak bargaining position. Benefits from membership in the currency union may be expected in the long term, but, in the short run, the cost would be experienced in reduced export competitiveness and deflationary pressure. Bonn's decision to give the East German Mark parity with the Deutsche Mark clearly hurt the economic prospects of the eastern Länder.

Not surprisingly, these Floaters' arguments encounter refutation from our Fixers.

Fixer 6. In as regionally and sectorally heterogeneous an economy as Canada's, the utility of currency flexibility as a shock absorber can be questioned. Where the country's staples-producing region may suffer from a fall in commodity prices, its manufacturing region may prosper: a 'correction' of the currency may help one region but harm the other and, for this reason, is too blunt an instrument to respond to regionally specific changes in economic conditions.⁽¹²⁾ The Fixers' argument becomes either that Canada, with a highly diversified economy, does not need exchange rate flexibility, or that the instrument is too insensitive to cope with its enormous regional variations.(Harris 1992) In other wordw, it matters that Canada is not an optimal currency zone.

Fx 7. Fiscal policy would certainly become more important as an instrument of adjustment to external shocks following entry into a currency union, but it is not the only adaptation mechanism available for policy makers. Since the locus of industrial policy is increasingly moving to the provincial and municipal levels,(Wolfe 1997) made-in-the-region policy-making is likely to be more responsive to local conditions, including the geographically specific fallout from general shocks. Other factors -- including other types of government policy -- could or would also come into play. Many tools of micro-economic policy can be targeted by sub-national jurisdictions to stimulate an economic region or sector in distress. While NAFTA prohibits some policies (particularly those that discriminate against foreign-controlled corporations) and the World Trade Organization (WTO) subsidy code rules out others (particularly those targeted at export promotion or import substitution), high unemployment or low income can justify government intervention that the WTO would otherwise deem protectionist.

Beyond the direct intervention of government, market forces can also work independently of exchange-rate responses to mitigate the impact of shocks. Wages, if they are flexible, cushion the impact of external disruptions. As trade unions lose power in response to globalizing forces and as wage rates consequently become less "sticky", wage flexibility makes economies more responsive to shocks, particularly where unemployment levels are high. Labour mobility -- which can be encouraged by industrial adaptation policies -- can also help depressed or manic regions adjust to (mis)fortune.⁽¹³⁾ Foreign capital may also help an economy respond to shocks, whether positive or negative, though some types of foreign capital move faster and other types of capital are economically more productive. The inflow of speculative financial flows can only provide short-term relief while at the same time increasing an economy's vulnerability to future destabilization. Direct foreign investment can actually create economic activity, but transnational corporations' strategic decision-making is too slow for shock-buffeted economies to count on this factor as a means of achieving rapid adjustment.

Mexico strikes even the amateur observer as a third world economy.⁽¹⁷⁾ Even if its state-sponsored import substitution industrialization and the autarchic, monopolistic structures that were erected after World War II have been rapidly dismantled in the past decade, it is patently vulnerable to much higher rates of inflation, unemployment, and currency volatility than its gringo neighbour.⁽¹⁸⁾ Having had a peso fixed at the rate of 12.5 to the US dollar for two decades from the mid-1950s, it devalued in 1976 to 22.6 to the dollar. A few tumultuous years of oil price appreciation with the consequent increased inflation, foreign capital influx, external deficit growth, and ultimate debt crisis in 1982 resulted in a peso worth one 150th of a dollar. Five more years following the fall of world oil prices left the exchange rate at 2,281 peso to the dollar. An even greater peso crisis was in store following continuing high inflation which, together with rising US interest rates, massive intervention by the Banco de Mexico to maintain a high exchange rate, and the influx of long- and short-term foreign capital in anticipation of the new North American Free Trade Agreement, produced a peso so overvalued by 1994 that it was poised for a further disastrous crash. See Figure 6.

insert Figure 6: Mexican Exchange Rate in terms of US Dollars (1950-1998)

Source: Bank of Canada

Given this roller coaster history it might be thought that Mexico would be the first to apply for currency union for the same reason that France since the early 1980s has wanted identification with, if not actual membership in, the Bundesbank: Mexico would instantly gain the international credibility of its hegemonic neighbour along with its level of price stability. Because of Mexico's state-controlled union movement, wages can `flexibly' respond to a shock, allowing the economy rapidly to achieve a new `equilibrium' without having to resort to devaluation.(Lalonde and St. Amant: 105.)

For banking professionals, however, fixing Mexico's exchange rate would be extremely risky. For one thing, the period between the announcement of the plan to form a currency union and the actual moment of consummation would be perilous: a lone currency pegging to a stronger one requires very substantial international reserves to defend itself from the speculative rushes that would be unavoidable until the irrevocable had happened.

Moreover the differences between the Mexican and American markets' reactions to shocks are far greater than those between the Canadian and the US economy. Supply shocks account for more output fluctuation in Mexico than in any US region. Apart from its response to shocks, their nature in Mexico is different. Although there is a common component to North American supply shocks,⁽¹⁹⁾ the size of real demand and monetary shocks is greater for Mexico,⁽²⁰⁾ leading to larger price shifts and greater changes in real balances.⁽²¹⁾ What is more, political shocks can be even more disruptive to the economy. In the course of a single calendar year rural uprisings, political assassinations, and spectacular kidnappings linked to the ruling party's authoritarianism and the narcotics business shook the confidence of global capital markets and, combined with dubious monetary policy, culminated in the currency crisis of December, 1994.(Weintraub 1997: 54-68)

Once in NAMU, Mexico's problems would not be over. It would still suffer external economic shocks, whether those generated in the American economy through its fluctuating demand for Mexican products or from global economic changes. It can expect to continue to be shaken by those internal tremors that form part of the current process of radical economic liberalization, with its resulting widespread urban and rural poverty under conditions of reduced government control and increased violence.(Teichman 1997a) In either case, membership in a currency union would make it harder to offset the forces raising the Mexican level of unemployment. Blocking imports by higher tariffs to counteract a critical current account deficit and stimulating specific sectors with interventionist industrial policies targeted to promote Mexican companies are policies no longer available to the government under the restrictive provisions of NAFTA. Devaluation can at least stimulate exports, but with exchange and interest rates fixed not by the Banco de Mexico but by a continental central bank, the government would be forced to rely on fiscal policy, a tool even less useful for helping a developing economy react to external disruption than it is in a highly industrialized economy.

As in the Canadian case, this argument for currency autonomy can be questioned. The 1994 crisis was itself the product of a misguided, albeit autonomous, policy aimed at keeping the peso's exchange rate defiantly high.⁽²²⁾ However much these arguments can be contested, our opening paradox is nevertheless reaffirmed: policy makers who find in NAFTA a key to transforming Mexico from a third- to a first-world economy consider NAMU to be a formula condemning Mexico to remain a weak regional sister, the Newfoundland of North America.

II Politics and Calculating the National Interest

The fate of Newfoundland shifts the debate onto a different plane. If this bankrupt British colony floating by itself in the cold waters of the North Atlantic could never have been thought to qualify as a member of an optimal currency zone with the nine provinces comprising the Dominion of Canada in 1948, we must introduce the factor so far excluded from our analysis: politics. Prestige and patriotism -- one dare not speak of a Canadian version of Manifest Destiny -- motivated Canadian politicians to accept the burden of the fiscal transfers needed to bring Newfoundland's infrastructure and standard of public services up to the Canadian mainland's norm. Since a slim majority of Newfoundlanders considered the promise of these material gains to be worth the sacrifice of currency and policy autonomy, there was the making of a deal.

The case for or against currency union, in other words, cannot be left solely in the hands of neo-classical economists and bankers. At some point the national and social values of the potential partners have to be addressed. If we are to understand why North America has not moved to currency union, we must come to grips with the way each country sees its national interest.

Mexico

We have already seen that the Floaters' economic critique of currency union has an implicitly political subtext: currency autonomy is necessary if the Mexican government is to have any hope of navigating through tumultuous seas. Thinking more broadly of the Mexican political culture, with its deeply anti-Yankee nationalism born of bitter military experience with US territorial expansion and direct American intervention in Mexican affairs over the years, the subsuming of the peso into a super-dollar can only be contemplated as an ultimate giant step in a long process of cultural integration in which Mexicans' national identity had become compatible with a superimposed North American consciousness.

The United States

Washington aims to maximize continental economic and policy integration but minimize the three states' institutional integration. Even though its neighbouring governments have less and less actual control over their important economic policy levers, it is in the hegemon's interest not to accept responsibility for their social and cultural problems.

Washington's concern about the peso is indirect: will instability on Mexico's currency market have a contagious "tequila effect," destabilizing other currencies, including the American? Will exchange rate swings swamp the effects of tariff reductions achieved by NAFTA? The American interest in the Mexican peso is therefore to achieve a stable exchange rate with smooth rather than catastrophic adjustments to future shocks. American politicians keep a watching brief on Mexico's performance, but, in the current circumstances of its underdevelopment and overpopulation, currency union is a nightmare, not a dream. The American goal is to extend the market's sphere (which it dominates) while reducing the reach of political institutions (where Mexican and Canadian policies could voice their demands). If currency union brought NAFTA a step closer to labour market integration, NAMU would nullify one of the chief objectives Washington had hoped NAFTA would achieve: a more prosperous Mexican economy generating enough employment for its own burgeoning population to reduce migratory pressure towards the north. Taking on the burden that could imply massive transfers of population over the Rio Grande from the south to the north, and perhaps massive transfers of social support funds from the north to the south, is not a US prescription for life, liberty, or the pursuit of happiness.

While discrete parts of the American economy may suffer from the import competition exacerbated by a peso devaluation, there is no national resonance to the battle cry against Mexico of "competitive devaluation!" analogous to France's angry response to Italy's depreciation of the lira in the early 1990s. Washington's apparent unconcern about competitive devaluation even relative to Germany and Japan is also due to the key American state agencies that deal with exchange rate policies being institutionally insulated from the industrial sectors that can suffer from global currency volatility (Henning, 1994). When the Canadian dollar is low, there are specific interests in the American political economy (forest cutters, grain farmers, auto workers, steel makers) who complain of unfair competition. But the US economy is so diversified that these losers are balanced by other winners (notably the consumers of lower priced imports). High levels of US corporate control in Canada also ensure that no powerful political force develops a platform to attack Canada's competitive advantage allegedly derived from exchange rate depreciation.

The Canadian economy has such high levels of American ownership and technological mastery, is so complementary to the US economy's needs, and is such a large market for US exports that political Washington has little sense of threat from it. There might be some public satisfaction from the thought that the domain of the US dollar would be expanded to cover the whole of the continent, but the American public would not likely be willing to pay for this increase in pride with any increase in financial burden.⁽²³⁾ American politicians' tenacious determination to retain every possible speck of national sovereignty would make it very hard to sell the idea that Canada and Mexico should be granted membership in a continentalized Federal Reserve Board.

The prime precondition among neoclassical economists for NAMU is for the North American economy to approximate an optimal currency zone. While it would be unnecessary for all of the continent's regional economic differences to have become homogenized in terms of their mix of resource, manufacturing, and service industries, their developmental disparities would need to have narrowed. Most important in this regard would be a successful transition by the Mexican economy to first-world status. What would further condition symmetrical responses in Canada, the United States, and Mexico to common economic shocks would be a continuing continental integration through transnational corporate restructuring. Trilateral harmonization in the marketplace could generate such low tolerance for any currency fluctuations among market players that they might press to have NAMU put back onto the policy agenda.⁽²⁴⁾

Approaching the condition of an optimal currency zone might not even be a necessary let alone a sufficient condition. Washington would need to be impelled -- possibly by a change in the global balance of forces -- to consider NAMU in its national interest. The US retrenches continentally when threatened globally.(Clarkson 1997: 4-6) In the mid 1980s, the United States embarked on the course that ultimately led to NAFTA because of its apprehended decline in global hegemony. If by the 2010s, the Euro has successfully challenged the US dollar as a reserve currency, Washington might again look to North America as a means to buttress its competitive position on global capital markets.

It is hard to envisage such continuing economic integration taking place without pressures for a parallel political deepening of the NAFTA system. Such an institutional consolidation of the North American regime would not have had to achieve full political integration just as the EU does not need to have become a United States of Europe to contemplate EMU. Many assume that making currency union acceptable in the USA would require a monetary authority that was still politically accountable to Congress. Others believe the policy rigidity created by NAMU would require labour mobility across national boundaries as well as mechanisms of redistribution so that losing areas could be compensated by winners. Whether labour mobility and regional economic equalization need to be part of a currency union, can, of course, be contested. The EU has only very minor degrees of both since cultural differences restrict labour migration and the EU budget for regional development is modest. NAMU would probably have to be brought into being without either.

At this point we can ask whether NAMU would ever be necessary. If Europe is the implicit model for this analysis, it can be argued that North America is already demonstrating some of the characteristics that the project of monetary union in Europe is designed to achieve. It took the Maastricht criteria -- negotiated behind closed doors and imposed on the EU's reluctant member states over massive protests in the streets of Paris and angry obstruction in the council chambers of Rome -- to push member-state governments in the direction of a neo-liberal orthodoxy which has already been achieved in Ottawa and Mexico City by other, less institutionalized means. A change of generation within the Institutional Revolutionary Party's technocratic elite has brought fervent neo-liberalism to the commanding heights of the government and the Banco de Mexico.(Teichman 1997b: 14-22) The Bank of Canada shifted to monetarism in 1974 well ahead of Paul Volcker's conversion of the Fed. Ottawa's Department of Finance -- chastened by Moody's unfavourable credit ratings -- pushed the national deficit relentlessly down to zero, whatever the cost to the country's social and cultural fabric. In effect, bank, treasury, and finance officials in the three countries already form a continental chapter of the global epistemic community of financial officials -- reading the same books, thinking the same thoughts, convening in the same conferences, and persuading their respective publics that low inflation has priority over low unemployment as the number-one policy priority.

III Implications for EMU

To extract the lessons for Europe of the divergent North American currency experience, let us rephrase our opening paradox. Although the world currency market -- with its high-tech, 24-hour-a-day, instant transmission of billions of funds -- is the most advanced aspect of globalization, exchange-rate autonomy is touted as a prime expression of national identity not only by the continental hegemon but by its neighbours to the north and to the south. Bankers north of the 49th parallel and south of the Rio Grande concede that, as economic integration among the three countries continues to deepen -- with pressure on the two peripheral countries to harmonize their industrial standards and even their tariffs up or down to US levels, exchange rates can be expected to fluctuate less and long-term interest rates converge more. They concur that policies straying from orthodoxy will in any case be rapidly punished by globalized capital markets. Nevertheless, contrary to Ohmae's prognostication that globalization has made obsolete the traditional instruments of central banks,⁽²⁵⁾ North American banking officials cling to their currency sovereignty.

It would appear that we hold in our hand the key to explaining some of the most intriguing differences between the process of integration on the two continents. If we translate our paradox into global finance's "unholy trinity" -- capital mobility, exchange-rate stability, and monetary-policy autonomy -- we can put our contrast of the two continental systems into a more analytically fruitful light.(Cohen 1996: 280) All members of NAFTA and the EU have opted for capital mobility, but North American states are willing to sacrifice exchange-rate stability in order to retain what for them is the greater good of monetary-policy autonomy. In contrast, those states joining EMU are willing to abdicate monetary-policy autonomy in order to achieve what for them is the higher value of exchange-rate stability.

Thus dogma reigns in its distinctive fashion on both shores of the Atlantic Ocean. On its eastern beaches open economies are believed to be too vulnerable to tolerate the disruptive threat of the very currency volatility which, on its western shore is held to be a stabilizer vital for the survival of separate socio-political regimes. In North America so much trade is carried on within the continental corporation that exchange-rate stabilization is low on the TNCs' political agenda. In Europe it is maintained that the TNCs are a driving force urging EMU, even if they too are shielded against uncertainty by their intra-firm accounting practices.

The elites driving EMU to fruition seem to want a common currency less for economic reasons than to pursue a multiple -- though not necessarily coherent -- political agenda: neo-liberal pressure to restrain the welfare state, the Fortress Europe drive to consolidate continental power in its global context, the Franco-German effort to remain hegemonic within the EU, the "Club Med" countries' striving not to be left behind, and neo-functionalist hopes to achieve a supranational Europe with a common identity for its citizens. Because currency notes and coins are not just one of the most widely produced consumer goods but as a consequence among the most powerful vehicles producing national identities,(Helleiner 1998: 6) one can hypothesize that North America is likely to remain a mirror image of the European Union. Whereas the Euro is expected to strengthen the community-wide self-consciousness of European citizens, North American elites prefer to leave national identities intact while unobtrusively acting as coordinated managers of a continental dollar zone in which Canada and Mexico follow the US lead in most important monetary policy shifts, unless they want to be even more neo-conservative than the Fed.