Referendum, rumours and low growth: euro's week of woes

Click to follow
The Independent Online

The euro plunged to its lowest level in eight months yesterday amid reports that Germany, the bloc's largest member, was starting to distance itself from the whole monetary union project.

The euro plunged to its lowest level in eight months yesterday amid reports that Germany, the bloc's largest member, was starting to distance itself from the whole monetary union project.

The single currency was also hit by a cut to estimates of growth this year and news that the European Commission and central bank were cutting their forecasts.

According to a magazine report, Germany's finance minister, Hans Eichel, and central bank governor Alex Weber were present at a meeting last week where the "collapse" of monetary union was discussed.

Although it was denied by the authorities, the report added to the woes for the euro in the wake of the French rejection of the European constitution.

The euro fell to $1.2218 (67p), its lowest level against the dollar in more than eight months, and a drop of two cents since the outcome of the French vote on Sunday.

Stuart Thomson, of stockbroker Sutherlands, said the referendum was the "beginning of the end of the euro". "Failure is inevitable by 2020," he said.

Mr Eichel said there were "no" doubts about Europe's single currency.

The EU's statistics agency cut its estimate of growth in the first quarter of 2005 to a 1.3 per cent annual rise from 1.4 per cent. The Commission cut its growth forecast for the second quarter for the second time by 0.1 percentage point to between 0.1 and 0.5 per cent.

Analysts said the move would put further pressure for a cut in interest rates on the European Central Bank, which was yesterday reported to be planning to cut its own forecasts for both growth and inflation.

According to one leak, the ECB sees inflation "at 1.4 per cent in the first half of 2006, then falling" - below the ECB's objective of maintaining inflation below but close to 2 per cent.

Growth is also seen as being weaker than expected - 1.4 per cent this year (revised from 1.6 per cent) and 2.0 per cent next year (down from 2.1 per cent.).

Comments