Outlook: Euro weakling

JUST FIVE months ago as the Euro was launched on a tide of balloons and Beethoven, it was a commonplace to say the new currency would shortly rival the mighty dollar in status. Central banks the world over would buy it for their reserves; the creation of a single European financial market would give euro assets the liquidity of US Treasury securities, attracting international investment; the European Central Bank would swiftly establish its anti-inflationary credibility; and not least the creation of an economic colossus to rival the US would generate the fundamentals to underpin a strong euro.

Instead, we have had sluggish growth on the Continent in contrast to the stellar performance of the American economy, a blistering row between Oskar Lafontaine and the ECB about the level of interest rates, and general ineptitude on the part of Wim Duisenberg in handling the financial markets. Central banks have refused to treat it as a reserve currency and to cap it all, the politicians have started misbehaving again, giving the Italian government the thumbs up to relax its efforts on budget control. Admittedly, there have been some promising steps towards full financial market integration, but this is really the only part of the euro dream to have lived up to expectations.

The only time the markets have voted unambiguously for the currency was when Red Oskar resigned unexpectedly. The boost lasted less than a week. As the months pass, dollar parity looks all too possible. Which is why now might be the right time to switch out of dollar into euro assets. Don't believe the hysterical triumphalism of the eurosceptic press.

The European economy is not a busted flush. Britain, it should be noted, will be the weakest economy in Europe this year, projected to grow only half as fast as Germany, France and Italy. Nor has the Euro lost its fundamental appeal. Nor should the euro yet be written off as as a flawed endeavour.

It is important not to lose a sense of perspective. The slide in the euro since 1 January takes it back to the level it would have had last July if it had existed then. The pound declined just as much in a shorter period last summer, and has more than made up for it since.

None of this is to belittle the scale of the challenge facing the euro zone. The most serious worry must be the outlook for fiscal discipline, or lack of it.

The problems of co-ordinating budget and interest rate policies are clearly unresolved, both practically and politically. Just days before news of the new Italian budget fudge emerged, the ECB issued a stern warning that governments must get serious about cutting their underlying deficits if they ever wanted to have room to boost growth. But nor should we underestimate Europe's determination to make the project work. Sell Wall Street and bank the euro might be a reasonable punt right now.

Start your day with The Independent, sign up for daily news emails
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine