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
ebooksNow available in paperback
Life and Style
The 67P/CG comet as seen from the Philae lander
scienceThe most important scientific breakthroughs of 2014
Arts and Entertainment
Ian McKellen as Gandalf in The Hobbit: The Battle Of The Five Armies
Arts and Entertainment
Sarah Koenig, creator of popular podcast Serial, which is to be broadcast by the BBC
tvReview: The secret to the programme's success is that it allows its audience to play detective
Ruby Wax has previously written about her mental health problems in her book Sane New World
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

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas