Outlook: Euro blues

THE MANAGEMENT (or lack of it) of the euro makes it a miracle that the new currency has not fallen further since its launch. Every single one of the potential tensions that sceptics warned about before 1 January has come about - political interference, slippage on budget deficit reduction, structural impediments to economic growth, clashes between unelected bankers and elected politicians. There could hardly have been a worse pair of midwives than Oskar Lafontaine, the former German finance minister who did not bother to attend the launch ceremony, and Wim Duisenberg, the ECB president who has what can only be described as a negative gift of the gab.

There is no doubt that both bankers and politicians could improve matters. They could all learn some vocal discipline, and just shut up about the exchange rate. The spectacle of one lot heaping public blame on the other has traders rubbing their hands in glee before they hit the sell button. And Europe's political elite could make a big difference with a commitment, however symbolic, to the sort of structural economic reforms that are no-brainers on this side of the Channel - lower taxes on jobs, say, or longer store opening hours. It is hardly radical stuff.

The really unexpected aspect of Euroland's currency crisis, however, has been the weakness of two of the core economies, Germany and Italy. This had not been factored in by the financial markets ahead of the launch, so the conflict between the need for lower interest rates in these two countries, in contrast to the booming peripheral economies, has created uncertainty about interest rates and growth prospects.

However, business cycles do turn. The euro will not be weak for ever. And the weakness is overdone precisely because the markets and pundits are focussing on the bad news. The rest of Euroland is doing pretty well. Sentiment about the currency could go into reverse - especially if the bankers and politicians decided to help rather than hinder it.

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