One Euro, One State.

The euro arrives at the stroke of the new year, and the Continent is abuzz. This week Europeans can buy some 200 million starter packs to get a good look at their new money. Armies of delivery trucks are streaming to the banks that must stuff cash machines by midnight on Dec. 31, as technicians retool everything from vending machines to parking meters. Buying boomlets have cropped up as people spend the francs, lire, pesetas and marks they had hidden from the tax-man; one German retail chain is openly urging people to spend their "black money." Confusion reigns as telephone scams use the countdown to dupe people into bad investments. No wonder the polls still report that a big chunk of the 300 million people in the 12 eurozone countries would rather hang onto their own currency a while longer.

Confusion is nothing compared with what could happen as Europe moves on to the next stage in its grand experiment. The euro was born out of politics, in part a condition for France to approve the reunification of Germany. By erasing national borders, it is a step toward a political union that was initially conceived in the 1950s to reduce the risks of another European war. Many Europeans forget that former German chancellor Helmut Kohl had intended the euro to be the first move toward a United States of Europe. The Treaty of Maastricht, which laid out the final path to the euro in 1992, calls for political integration. No one broadcasts the controversial goal too loudly these days. Quietly, though, eurocrats hope the summit just adjourned in Laeken, Belgium, will lead to some kind of constitution for Europe.

If people accept the euro easily, they may also tolerate further power-grabbing by Brussels. But if Europeans feel cheated by sneak price hikes, or confused by the new currency, they will be hard pressed to back anything that smacks of an even greater loss of sovereignty. Their anger could be exercised directly if a constitution or new supertreaty is achieved and put to the people for a vote. So far, the euro has been at best a weak vote getter at the polls. Germany, where two thirds of the people are still opposed, never had a referendum on abandoning its beloved mark, and the French barely approved it by a 51 percent majority. Denmark has said no, twice.

Europhiles and euroskeptics alike agree that a single currency is not workable for long without some kind of a federal state. That's because the European Central Bank controls interest rates, but national governments still control spending, and the two can have opposite effects on economic growth. The eurozone nations tried to preclude such clashes by requiring all members to abide by a cap on deficit spending, but that only limits national options. It does not widen the powers of the European Union. In the United States, by contrast, if Texas slumps when California booms, help is automatically transferred via Washington in the form of taxes collected in one state and unemployment benefits paid out in the other. Europe doesn't have such a shock absorber.

There is already friction between countries over the powers of the European Central Bank. The ECB rate of 3.25 percent might still be too high to boost growth in Germany, now dipping into recession. Ireland, where housing prices doubled in four years, grew by 9 percent last year and needs to put on the brakes.

Ireland is just a tiny part of the euro economy. But the stakes grow when two large countries seriously diverge.

The question in such a situation is, how much power do the federalists have to assume to save the euro? The first test will be whether the people accept some kind of federal tax to redistribute welfare services throughout the eurozone, says Eric Chaney, economist for Morgan Stanley. At the moment, the EU budget is only 1.4 percent of the value of the EU economy, compared with 18 percent in the United States and one third to more than one half in individual European ...