After all the excitement of an amazing US presidential election, here we stand in the cold light of dawn, wondering what happens next. What can we Europeans expect of President Barack Obama? As others have pointed out, his first duty will be to serve the interests of those who elected him and not the political priorities of friends and neighbours, so we should not raise our hopes too high.

Yet things do seem very different this time. All the evidence suggests that Senator Obama will be a president who is deeply committed to a multilateral approach and who perceives international co-operation as fundamental to meeting the challenges which the US faces. His July trip around Europe gave a strong indication of his global perspective. The deeply unpopular image of America across the world causes him real distress.

Obama was careful during his campaign to avoid giving too many hostages to fortune, but trade was one exception, as the candidate argued that free trade agreements such as NAFTA were responsible for job losses and that outsourcing of production benefited businesses while damaging the interests of their workers.

A strengthened Democrat majority in Congress will not make it any easier to resist protectionist sentiment and no doubt we can expect some early measures such as support for the US auto industry – a distant echo of President Bush’s support to steel and farming in the early days of his first term. There may well be tax changes as well, which make outward investment less attractive to US firms.

There is a small window of opportunity. Over the coming weeks people will seek to breathe new life into global trade negotiations. The new trade commissioner Baroness Ashton has raised the hope of progress for the Doha Round in what I thought a rather convincing BBC interview and Pascal Lamy has offered to stay on at the WTO in pursuit of an agreement.

So will the November 15 summit in Washington open the way for trade talks as the Brazilians hope, I wonder? And will President Sarkozy speak for free trade during the meeting? Maybe it will be easier in the absence of ex-Commissioner Mandelson!

Climate change is an issue where we can confidently assume that the new president will chart a new course. Take a look at his manifesto on energy and climate change. He espouses emissions trading, wants renewables to provide 25 per cent of energy needs by 2025 and sees further investment in biofuels and new technologies. Nuclear power and energy saving also feature on his wishlist.

Europe should feel comfortable with this agenda, but faces some fundamental challenges of its own, in particular whether it can deliver on the commitments already made, without which its current position of leadership will melt away. The broader challenge is to bring China, India and similar economies more directly into global decisions. Real progress by Europe and the US will be an essential precursor of movement here.

The evolution of US policy towards Russia will be of special interest to Europe, intertwined as it is with the issue of Star Wars missile defence.

Medvedev’s clumsy reference to Russia’s anti-missile missiles in Kaliningrad (or are they anti-anti-missile-missiles?) is hardly likely to change US policy, but I suppose was intended to put pressure on the EU and to drive in deeper any wedge between the US and Europe. After all, Russia already has such armaments in situ. For Polish prime minister Donald Tusk Medvedev’s statement was political and not military.

Obama is a man who will take his time. Once in office he will no doubt weigh up the efficacy of the anti-ballistic missile system, its budgetary cost and its political implications. The Pentagon is asking for $65.5 billion for development at a time of severe budgetary pressures. Any improvements in US-Iran relations would also come into the picture. If there is a change in US policy it will be rationally thought through and set in a wider context than just providing comfort for Russia.

The Europeans are keen to seize the initiative on a reform of global economic management at the November 15 Washington summit and produced a detailed set of proposals when they met in Brussels on November 7.  The current mood in the US will certainly be responsive to tougher regulation, maybe going further than the European Commission, for instance, would want. How far a new president will respond to giving more power to international organisations such as the IMF remains to be seen. Once again the Democratic dominance in Congress will be an important factor.

Finally there are those issues such as the Middle East conflict and the war in Afghanistan. While Europeans hope for a more proactive US role in the peace process they can also expect the new president to demand greater support against Al-Qaeda. This may be the most challenging element in transatlantic relations over what promises to be a period of far-reaching change.

So Commissioner Viviane Reding has decided to play hardball over telecoms reform. Some weeks ago we discussed how the Commission’s proposed telecoms package would hand over extensive new powers to Brussels.

The European Parliament watered down these proposals in first reading, but it seems that the revised version to be sent to the Council gives little ground on the core issue.

As if to remind the member states just how hopeless their regulators can be, the Commission has demanded that the Belgian regulator should do something about Belgacom.

Belgium’s incumbent operator has retained the lion’s share of residential telecoms business despite a liberalised market and has actually increased its market share for business users by value and by volume.

The message seems to be that competition policy has not done its job. The Commission wants action. This is regulation, raw in tooth and claw. What’s more, it enhances the Commission’s image as defender of the consumer – excellent public relations which build on Reding’s assault on the mobile operators’ text and roaming charges.

In last week’s Venice speech to the incumbent operators Reding set out her philosophy quite clearly, emphasising that the virtues of regulation had recently become rather widely recognised in the context of the credit crisis. No apologies there, then.

So the Commission has given little to the Parliament on the issue of control. The main change to her proposals seems to be the creation of an Office for the European Telecoms Regulators (OETR) managed by a 12-strong board, half of them appointed by the Commission and half by member states. The European Regulatory Group (ERG) would apparently have an advisory role and the Commission would retain a veto over the decisions of national regulators, albeit with some OETR involvement.

Some loss leaders have been abandoned or modified, such as previous proposals on network security, spectrum and policing of the internet, but when telecoms ministers meet on November 27 we can expect some fierce skirmishing in defence of national regulators before a qualified majority can be achieved, and maybe further hastily convened Council meetings before the end of the French  presidency.

The package is scheduled to go to second reading in the Parliament in April 2009. The question for Reding is, can she get such a tough package through before the June elections?

There are tentative signs that the dust is beginning to settle after the last few hyperactive weeks, with signs that world leaders have mounted an effective response to the credit crisis. Inter-bank lending seems to be recovering, stock markets appear more stable and the outline of a global approach is beginning to show, following three weeks of frantic decision-making at national, European and at global levels.

As so often happens, it is the force of this crisis which is driving Europe forward. The EU landscape has changed in many ways in the last three weeks.  Its political position has been strengthened. There is no question that President Bush’s invitation to Presidents Sarkozy and Barroso to dine with him in Washington last weekend and their joint commitment to a series of global summits must mean that the EU can now claim a real voice in international monetary affairs.

The crisis may be labelled “Made in America”, but its repercussions across the world have made a pan-European approach essential.  Never have the implications of globalisation been so clearly demonstrated. Any unilateral country-by-country response, such as the Irish and German proposals on deposit protection, met with a storm of protest.

One curious consequence of the crisis is the transformed relationship between the eurozone and the UK. We used to argue that Britain should adopt the euro lest the UK be excluded from the Eurogroup of countries and so lose influence.  How ironical, then, that Gordon Brown should be invited to attend the euro summit on October 12 and become the hero of the hour, transformed into Flash Gordon with his (or rather Chancellor Darling’s) three point model for underwriting inter-bank lending, recapitalising the banks and protecting savers. Brown even takes his place in the family photo of the 15 eurozone ministers!

You could argue that it was precisely the UK’s independence of the euro which made the UK’s actions possible, but taking these drastic measures if everyone else was doing nothing would have been highly risky for the Brits. Incidentally, I wonder how much liquidity the UK’s major banks have received from the ECB since this crisis began. There’s even more interdependence here than meets the eye.

Of course the eurozone’s response to the Brown plan had to be political rather than legal, relying on common commitments and national measures rather than new EU legislation. It is only national governments which have the resources and the legal power to underpin their banks’ capital base.

The attention must now shift to the legislation to be adopted across various institutions to avoid any repetition of the crisis.

The Commission has already put forward a new proposal to safeguard depositors up to €100,000 per person, replacing the current €20,000 limit. Will this apply in Iceland, I wonder, under EEA rules?  Stronger regulatory measures have been proposed for banks and insurance companies and guidelines on state aid for guaranteeing deposits and bailing out banks have been issued by the Commission. President Barroso is emerging from the crisis with much credit – I would think his place is secure if he wants to serve a second term as Commission President.

The issue of bank regulation will be hotting up. Will central banks be given more responsibility? The British are certainly talking about it in relation to the Bank of England, and the subject will be on the agenda of the coming summit meetings in the context of post-Bretton Woods. For the eurozone, that must mean more responsibility for the ECB.
The crisis has triggered some interesting political developments. Take the Lisbon Treaty, for instance. Brian Cowen, The Irish Taoiseach, is committed to presenting the December EU summit with proposals to reverse Ireland’s rejection of the draft Treaty.

Mr Cowen argues that the EU has saved Ireland from a financial meltdown similar to Iceland’s and hopes that the Irish voters will appreciate this. He says that had his country not been part of the EU and the eurozone and without the support from the European Central Bank (about €70bn apparently) it could never have weathered the storm.

The Irish leader clearly hopes that this experience, plus reassurances on sensitive issues such as abortion and defence, will be enough to obtain a “yes” vote in a second referendum. The pressure is certainly mounting as the June deadline for European elections comes closer.

This will coincide with more straitened economic times as recession bites, public spending rises and jobs are lost across Europe. Things are far from returning to normal, and as someone said, the new normal will not be the old normal.

Just a week ago I suggested that continental Europe seemed rather detached from the global credit crisis.  Whoops! What terrible timing!

In the last seven days Europe has been hit by the storm force winds of this crisis. Liquidity has dried up, governments have been forced to rescue one institution after another, Iceland’s banking system seems close to meltdown, the Irish, the Greeks and the Germans have promised open-ended guarantees for bank deposits and the European Commission has been left floundering as the cry of sauve qui peut echoes across the EU.

Even Peter Mandelson has been brought back to London to shore up Gordon Brown’s war cabinet.

The Paris meeting of the Big Four was a show of solidarity but little more. The participants looked forward to tighter regulation in the future, but offered nothing at an EU level to cope with the current crisis.

It is only the state aid rules which have offered any sort of EU framework for national measures and several banking mergers and bailouts have been rapidly approved.

Deposit guarantees are a different matter. Commissioner Neelie Kroes fiercely attacked the Irish government for failing to discuss its guarantee scheme with Brussels in advance. It seems that she has made some progress concerning the detailed application of the scheme but not in the fundamental principle of an open-ended guarantee. The Brits and the French may now be forced to introduce similar deposit security, especially if the Germans go ahead, but the taxpayer liabilities are formidable.

It all demonstrates the massive cross-border implications of such measures. Inside or outside the eurozone, Europe must find ways to work more closely together in tackling the crisis.

While the United States and Britain reel from one catastrophe to another in the storm of the sub-prime crisis, the eurozone has seemed remarkably detached, until recently anyway. For the Americans and the Brits the news is totally dominated by stories of collapsing banks, bail-outs, vast lines of credit insurance which turn out to be no insurance at all, and an American administration desperately seeking a safe path for the US economy over the quicksands of collapsing confidence.

I’m not saying that the Land of the Euro is immune from the impact of this crisis – it clearly is not. The turbulence over Fortis Bank, to name but one of the repercussions, deepens the black hole for the missing Belgian government.

But there does seem to be a difference. The US and UK economies are so much more dependent on their financial services sector than most of the countries of the eurozone. What’s more, the great bubble of house prices linked with high mortgage commitments brings this crisis straight to everyone’s front door in Britain and America.

Maybe the continental reaction is also different because the power centres of the eurozone are so widely dispersed. It’s not like London or New York/Washington where the various regulatory institutions are perceived to work closely together. The European Central Bank from its fortress in Frankfurt is responsible for providing liquidity for the banking system across 15 countries; the framework for EU financial services regulation across the EU is crafted and overseen by Brussels; and individual member states have their own particular responsibilities for applying the rules, such as the clamp-down on short selling.

It’s striking to see how different players are reacting to the crisis. In the UK there may be talk of international co-operation, but the British government makes no mention whatever of the European legal framework, although it is evident that most of the legislation governing the solvency of banks and other financial bodies and the activities of financial services firms derives from EU decisions.

As for continental reaction, note the contrast between President Sarkozy and Charlie McCreevy, Commissioner responsible for the financial services sector. The French President is determined to push for more regulation and reserves particular venom for ratings agencies.

The Commissioner, by contrast, is keeping a low profile. He doesn’t like interfering with markets and plays down the need for drastic action on the regulatory front. He has even said that (unregulated) hedge funds and private equity should not be “tarred with the same brush” as the regulated sector.

Nonetheless, McCreevy must be seen to act, and sure enough the Commission is expected to come forward this week with some new proposals tightening up banks’ capital requirements in relation to securitised debt, although according to reports he has been persuaded by the banking sector not to go too far. Rating agencies will also face registration requirements, though short of the controls which the French and Germans would like.

The German finance minister Peter Steinbrück believes that the US will cease to be the global financial superpower following the credit crisis. He blames Washington for its failure to introduce stricter regulation despite European demands and has told journalists that in ten years time “we will see 2008 as a fundamental rupture”.

Apparently the Minister was particularly stung by the actions of a state-owned bank, which earned the soubriquet of Deutschland’s Dümste Banker from Bild Zeitung after it transferred €350m to Lehman Brothers two hours before Lehmans folded. Steinbrück is pushing for much tougher regulatory measures than McCreevy envisages.

After the Enron and WorldCom crises the US introduced Sarbanes-Oxley, a complex set of rules and red tape which many now see as over-reaction. Policy-makers now face another challenge – of preventing the excesses which produced the credit meltdown from ever recurring.

The Commission’s proposals will be a first step for Europe, although getting even such modest measures through Council and Parliament will be tough, given the impending European elections in June 2009. Maybe, though, this will be the opportunity for the EU to take the initiative in establishing a worldwide framework of regulation which does not throw Baby out with the Bathwater.

Nobody knows where the IRG begins and the ERG ends, Commissioner Reding complains to the European Parliament.

You can see just how irritated the Commission is that the Independent (telecoms) Regulatory Group (IRG) with 31 European members should have been registered as a private company under Belgian law, to do things which (she believes) should be left to the 27-member European Regulators Group (ERG) set up by the Commission. IRG, she says, is (just like Belgian football) ”alien to the Community approach”.

The Commissioner was speaking on the proposals for a new framework for European telecoms currently being discussed in the EP and Council. What she wants is an EECMA, a European Electronic Communications Market Authority, which would combine the functions of the ERG with those of the European Network and Information Security Agency, the body set up in 2004 to deal with cyber crime and cyber terrorism.

The Commissioner is fighting the good fight to extend the power of a European regulatory regime to the 27 member countries of the EU. The Commission believes that national regulators are too protective of national markets and inconsistent in applying EU policy.

For many people, though, this is a fight too far.

The proposals do appear to give untrammelled power to the Commission in managing telecoms policy, with little scope for parliamentary scrutiny and a significant transfer of power to Brussels. EECMA seems to have scant right of initiative and almost no scope to act.

Commissioner Reding does push hard for consumer rights – her battle for capping mobile phone charges was highly successful in its own terms, although the operators will always seek other ways to restore their margins – and has some support in the Parliament and Council, but the proposal to protect the position of the heads of national regulatory bodies from dismissal will be contentious in the Council and the bid to make freed-up spectrum more freely available at a European level will face fierce opposition.

I look forward to seeing just how far the Commission succeeds in what is in effect a major centralisation of power in the highly sensitive sector of telecommunications.

August is the traditional month for invasions. Foreign politicians are on holiday, much of the harvest has finished and there’s time to consolidate before winter sets in. So this time it was Georgia.

None of us who were around at the time will forget the August day in 1968 when Soviet bloc troops invaded Czechoslovakia to scupper the Prague Spring. On that very evening Mstislav Rostropovich and the USSR Symphony Orchestra gave a deeply moving performance of Dvorak’s cello concerto at a London Promenade Concert – a very poignant memory.

So has nothing changed? Russian troops moved into Georgia on August 8 2008, 40 years almost to a day later. But it’s not at all clear whether this was the launch of a more aggressive Russian foreign policy and reversion to an earlier model, or a justifiable response to Georgian military action in South Ossetia, an echo of the NATO campaign in Kosovo with different characters, as the Russians would claim. Truth is always the victim in these circumstances.

The OSCE seems to have serious reservations about Georgia’s role in the whole affair and there are even suggestions that the conflict was provoked by Vice President Dick Cheney in order to boost McCain’s cause in the US elections.

Rash initiatives by the Georgian government in South Ossetia were almost certainly the trigger for the Russian action, but a trigger which Moscow had long been anticipating. Its campaign was surely a far-reaching and thoroughly planned operation to damage the regime of President Mikhail Saakashvili, to assert Russia’s right to dictate political developments in its near abroad and to block NATO expansion in Ukraine and the Caucasus.

The tensions had been building for some months, apparently including a mounting level of cyber attacks on Georgian official websites similar to those previously experienced by Estonia, followed by reprisals against Russian sites by other so-called “hacktivists” who specialise in DDOS – Distributed Denial of Service, where websites are sabotaged by swamping.

It is the scale of Russian actions which may prove deeply counter-productive for Moscow. It seems likely to strengthen the US presence in the region and will raise the level of scepticism about Russia’s good faith in its international dealings. It will no doubt give quite a boost for those who wish to build new oil and gas pipelines which bypass Russia. Much will depend on how quickly the Russians withdraw from occupied Georgian territory and engage with OSCE and EU. However on NATO membership for Ukraine and Georgia the Russians may well have made their point. To offer NATO protection for these two countries under Article 5 would be to play for very high stakes.

The European Union has acted quickly with its ceasefire proposals, some strong words and convening of a special summit in Brussels, where deep divisions of opinion were papered over and a united Franco-German position carried the day.

Europe is at pains to stress that the EU makes common cause with the Americans, but its rhetoric has been much more cautious. Sanctions have been rejected and dialogue sustained. If President Sarkozy and his colleagues can make real progress in their talks with the Russian leadership, especially to the extent of launching a programme to resolve the “frozen conflicts” of South Ossetia and Abkhazia, then that would be a very considerable achievement

Russia needs the EU quite as much as the EU needs Russia, if only to counterbalance and moderate American policies in the region. While keeping the pinch of salt to hand it’s interesting to see what President Medvedev had to say to Euronews in defending the Russian position and describing Russia’s relationship with the EU.

“That’s the only cut this year!” quipped a council member when European Central Bank president Jean-Claude Trichet took the knife to the ECB’s birthday cake in Frankfurt on June 2. The occasion was the tenth anniversary of the Bank’s establishment. Apparently the mood in Frankfurt was of genuine celebration tempered by concern at the conflicting challenges which the Bank currently faces over inflation and growth.

It has been a long journey since June 1998. It’s strange to think that the decisions on who would join the euro zone were taken under British presidency in May ‘98. In the chair was Prime Minister Tony Blair, who had won a landslide election just twelve months earlier. He had to praise the significance of the euro, although he had decided against taking Britain into the new currency, a decision regarded by many people as one of his biggest failures given the strength of his position, and no doubt strongly influenced by Gordon Brown at the Treasury.

The most interesting drama at the time was over the ECB presidency. President Chirac demanded that Trichet, who was then governor of the Bank of France, should be ECB president, whereas Wim Duisenberg from the Netherlands was the consensus candidate.

The crisis was resolved with a classic fudge. I will be far too old to serve two terms as ECB president, said Duisenberg, but any decision to resign “will be my decision alone”. There was, however, an understanding that Trichet would take over once Wim had taken that his solitary decision. Chirac conceded. Relief all round.

When the French president pressed for Trichet’s appointment in 1998 he no doubt hoped that a more relaxed French regime would prevail over Germanic discipline, setting interest rates with an eye to boosting growth. In the event Trichet has staunchly defended ECB independence and its key mission: to fight inflation.  Trichet’s own appreciation of the ECB’s role, its record and the tasks ahead was summarised in his Frankfurt birthday speech.

The record of the ECB has surpassed expectations. Its handling of the sub-prime crisis since last August has impressed everyone and the euro continues to strengthen its position in global markets – as well as appreciating in value. It now accounts for around 25 per cent of foreign currency reserves across the globe and we can expect that to rise steadily. China, for one, is keen to increase its euro holdings.

May 1998 marked the creation of the Euro Group of ministers.  This group of 11 countries was expected to become a potent force in European politics and it was Britain’s exclusion from the club which many of us thought would be the biggest penalty for not joining the euro zone.

I can’t say it has turned out like that. For a start, total disregard of the Stability and Growth Pact by some of the biggest members caused deep divisions within the group. Not much solidarity there!

There has also been real divergence in the performance of the euro zone economies, both in terms of their growth rates and their inflation. Maybe the interests of the euro zone countries (15 of them now) are so varied that they will never be able to take common decisions on such issues as international exchange rates and the value of the euro, economic management or taxation policy. President Sarkozy, for instance, has called for a cut in certain VAT rates across the EU to put the brake on rising prices, but his finance minister Mme Lagarde got short shrift from colleagues when she put forward the idea at the recent Frankfurt meeting.

On the international front the Euro Group president, Luxembourg’s Juncker, has bemoaned Europe’s failure to speak with one voice in the IMF. The question is, what should the voice say? A high level delegation to China was hyped as a first example of euro diplomacy, but it does not seem to have amounted to much. Maybe that could be a role for the soon-to-be-named Council president – provided he/she comes from a member of the Euro Group. 

I see that Slovakia will be the next country to adopt the euro, as of January 1 2009, when it abandons the koruna. It has revalued its currency in advance as an anti-inflationary move. Political opinion in Denmark continues to move in favour of membership. A referendum would of course be needed, and Sweden is publicly stating that a positive Danish vote would open the way for Sweden to consult the people as well, at the earliest in 2011.

Which leaves the United Kingdom. Willem Buiter, former member of the Bank of England’s Monetary Policy Committee is in no doubt. In his view Britain should join now. The FT’s Martin Woolf strongly disagrees.

Buiter refers to the enormous external liabilities of the UK’s financial services industry – €400bn in foreign currencies in his estimate, which is four times the country’s GDP. The Bank of England, he maintains, could never act as lender of last resort for such liabilities. Joining the euro and depending on the resources of the European Central Bank is for him the only way to defend the UK from an Iceland situation, where vast liabilities have accumulated in proportion to the size of the domestic economy.

It’s a bit tough being compared with Iceland, but it does focus on some of the issues raised by the sub-prime banking crisis and the new perceptions of risk that we have to live with. But probably the biggest test for the ECB over the next 10 years will be how far the euro zone can handle its own internal tensions and the divergence of its national economies.

The Germans paid €5 million for a disk detailing trust accounts which had been lifted six years ago from Lichtenstein’s LGT bank. Former head of Deutsche Post Klaus Zumwinkel is having to pay the price (about €1 million according to some reports), as no doubt will many other wealthy Germans.

The British Revenue has paid £100,000 to the thief and hopes to nail 100 people who had allegedly planned to avoid UK tax by setting up trusts in the principality.

Purchasing stolen goods in this way sets quite a precedent. I recall some years back when the disgruntled Luxembourg employee of a major Belgian bank produced a list of all the prominent Belgians who had tucked away their savings in a tax-free environment, but that could be described as whistle-blowing. The Brussels-Luxembourg motorway was always much used, so it was said, by Belgian dentists depositing their earnings.

Payment for stolen information is a grey area from an ethical standpoint, but also a reminder of just how vulnerable we may all be to data theft, not because we are trying to evade tax, but because so much of the personal information which is held on commercial or official databases could have a value to someone else, including blackmailers, fraudsters and phishers.

The only alternative to relying on such dubious methods of intelligence-gathering is for the EU to refine its own systems for tackling tax evasion. I see that Commissioner Laszlo Kovacs has told finance ministers that he intends to publish a report in June which would look at an extension of the 2005 rules to cover bonds, shares, funds and other instruments which are not currently covered by the savings tax provisions.

The dreaded Internal Revenue Service already has a deal with Liechtenstein which obliges the principality’s banks to inform the US of deposits from American citizens and there may be a precedent here. Liechtenstein’s application to join the Schengen area may be a useful lever for the EU to demand greater compliance with EU legislation.   

The big question is whether Kovacs will go for complete disclosure between the tax authorities of member states, and thereby open the way for a parallel procedure with non-member countries.   

Banking secrecy is the key. In 2005 Belgium, Luxembourg and Austria would only agree to the savings directive if they were allowed to impose a withholding tax rather than disclosing information to other tax authorities. We can expect pressure on these three countries to accept the need for change and we can also expect resistance. However, they are by no means the only ones within Europe’s borders who have come under scrutiny.

Luxembourg leader Jean-Claude Juncker, who chairs the Euro Group ministerial meetings, is reported to have said that he looks forward to “many years of fascinating, fundamental discussion”. Quite so.

It’s goodbye to the Cypriot pound and the Maltese lira, so who’s next for the eurozone?

What joy for travellers when the euro took over from 11 national currencies just six years ago! Gone was that muddle of francs and deutschmarks and lire and punt in our wallets, and all those old envelopes full of foreign change in the dressing table drawer. Suddenly all we needed were euros and the British pound.

The euro has been a remarkable success story. Its adoption by Cyprus and Malta from January 1 2008 brings the number of member states in the eurozone to 15 – a population of 318 million in a zone stretching from Finland to the mid-Med and from Ireland to Slovenia. It’s goodbye to the Cypriot pound and the Maltese lira.

I do like the design of the new coins – a beautiful Maltese cross, a shield and a prehistoric temple for Malta; and for Cyprus a 3,000 year old figure looking curiously like a Christian symbol one thousand years before its time, a 4th century BC sailing vessel and a pair of moufflon sheep. Cyprus’s coins have the island’s name in both Greek and Turkish. Maybe that will open doors on that divided island!

So who’s next for the eurozone? Slovakia is aiming for January 2009. Of the other non-euro outliers I could imagine the Danes joining within two or three years following their recent elections. Sweden is more doubtful and for the Brits we must be talking at least 10 years, if ever, given the state of British public and political opinion (see below).

Others are lining up: Estonia, Latvia and Lithuania are in the ERM; Bulgaria, Hungary, the Czech Republic, Poland and Romania are still working to get their economies in order.

For general background on the euro area see this page of the Commission’s website.

This year will be a testing one for the euro. As the economic background becomes more difficult, so politicians will want lower interest rates and a weaker currency, but the ECB is more concerned with inflationary pressures as rising oil and commodity prices push up costs.

ECB President Trichet has made it clear that fighting inflation is the priority for Europe’s central bank even if the Americans cut their rates to support the US economy. And of course a strong currency does help to contain dollar-denominated price increases.

The impact of a strong euro on particular industries is dramatically illustrated by the plight of Airbus, faced with direct competition from Boeing. Back in November CEO Tom Enders didn’t mince his words when he talked of “tremendous losses” for the company as the dollar continued to fall.

The situation has not improved since then. By the way, I thought it interesting that the Airbus boss was not complaining about the level of the euro, but underlining how the business itself must adapt.

Divergence between national economies may well put more strain on the eurozone, as the collapse of the housing market in Spain and mounting public debt in Italy threaten serious tensions. Indeed one major French bank warns that the interest rate spread for euro bonds might diverge significantly according to the country of issue, with the Italian and Spanish governments penalised by the market by having to pay much more for their borrowing.

We’re back to the old question: can the eurozone survive on the basis of “one policy fits all”? It has done so up to now, but there may well be speculation of members being forced to quit the euro. “No coincidence that all failed currency unions were abandoned during times of economic stress” says BNP-Paribas.

The estimates of growth for Europe’s economy are being revised down but there are reasons for some optimism. I’ve seen a timely reminder of just how important the member countries of central and eastern Europe, together with Turkey, the Middle East and Africa have become in maintaining momentum in the EU15’s economy. “Europe’s got its own China next door” says the author, Joe Quinlan from Bank of America. He sees the buoyancy of these emerging economies, both inside and outside the EU, acting as a powerful driver for Europe’s economy.

Talking of China, London’s Chatham House and the Robert Schuman Foundation have undertaken an audit of the views of Chinese policy-makers towards the EU. It is on the whole positive, but set in a long-term strategic context. One is reminded of Mao’s comment when asked what he thought of the French Revolution. “Too early to tell” he replied.

The latest Eurobarometer results give an idea of what Europeans think of the EU. It’s striking that across 27 member countries support for membership remains at its highest level since 1994, with 58 per cent seeing it as “a good thing”, against 13 per cent seeing it as bad. .

The Netherlands is way up – 79 per cent of the Dutch approve of membership, just three years after that negative referendum vote, as do 74 per cent of the Belgians and the Irish. The UK is bottom, at 34 per cent approval, with the Austrians at 38 per cent and the Latvians on 37 per cent. Nowhere do those who disapprove of membership outnumber those who approve.

Some of the most intriguing findings relate to trust. The pollsters asked respondents whether they “tend to trust” the European Commission. Across the EU one in two said yes, 26 per cent no, and 24 per cent were undecided. The Greeks at 69 per cent and the Belgians at 67 per cent felt especially trusting. France and Germany are around the EU average.

In the UK, on the other hand, only 22 per cent said they tended to trust the Commission and 47 per cent did not – far more negative then anywhere else. I can only suppose that this reflects the europhobe hostility of much of Britain’s national press.

But just as intriguing is the view that people take of their national politicians. Across the EU only 34 per cent say that they tend to trust their own governments, while 59 per cent do not trust them. In the UK 30 per cent trust their government and 34 per cent their Parliament, from which you might conclude that the British do not trust political structures wherever they may be.

For some eastern European countries like Bulgaria, Czech Republic and Romania the level of trust for EU institutions is around 60 per cent or more; for their own governments and parliaments around 20 per cent or less. The national political class is certainly finding it difficult to build confidence among voters in many parts of Europe.