The newly-formed European currency will compete with the dollar to become
the world’s leading currency in the 21st century. Its prospects in this competition will depend partly on the size of the European economy compared with the US economy. This article argues that unprecedented demographic trends will reduce employment and curb output growth in Europe, and so cause the European economy to lose ground relative to the USA. The demographic problems are more serious in Germany and Italy, where a falling population of working age
may lead to declining employment and stagnating output over periods of 20 or
30 years. Against this background the euro will fail to supplant the dollar as the world’s leading currency.