There was chaos at the summit of EU leaders in Cologne, which vetoed Germany's plan to declare there was no reason to worry over the 12 per cent fall in the euro's value against the dollar since its January launch.
However, they did agree to launch another review of how the union works, to be completed by the end of next year, approving an agenda that included "an extension of qualified majority voting" in the Council of Ministers, the EU's main decision-making body -which will present Tony Blair with demands to cede more power to the EU.
The dispute over the single currency developed because Germany wanted the 15 EU leaders to declare they did "not see any cause for concern in the present exchange rate trend of the euro". A draft statement blamed the currency's fall on "differences in short-term economic trends which will be ironed out in the course of this year and next", and said its medium and long-term prospects were "positive".
The draft was circulated to other governments in Cologne early yesterday and relayed to the financial markets through a leak to news agencies.
Germany found itself isolated when the 15 leaders sat down to finalise the summit's conclusions. All that remained in the final communique was one sentence saying that "a stable euro will increase Europe's ability to promote growth and employment".
Gerhard Schroder, the German Chancellor, said ministers had now taken a vow of silence on the euro. "I don't know of course whether everyone will stick to it," he said.
The financial markets reacted with predictable derision to the confusion after a week of conflicting signals from bankers and ministers. "The draft text was a succession of banalities, but the politicians can't speak with one voice no matter how hard they try," said Alison Cottrell, an analyst at Paine Webber.
Currency experts continue to predict that a combination of weak growth on the Continent and sheer speculation will take the value of the euro below the psychologically important barrier of $1, although it was stable at about $1.03 yesterday. Paul Mortimer-Lee, chief economist at Paribas, said: "The exchange rate is tumbling through the gap between the European Central Bank and this confusion of finance ministers."
Lionel Jospin, Massimo D'Alema and Jose Maria Aznar, the Prime Ministers of France, Italy and Spain, blocked the German draft. A Finnish government source said: "If there is no problem with the euro, why do we need to say so? How stupid can you get?" But the U-turn over the statement was a humiliating rebuff for Mr Schroder.
The EU leaders reiterated their commitment to structural economic reform and agreed to hold a special summit in Portugal next March, when reform proposals from Britain and Spain will be discussed.
Mr Blair's aides played down any threat to Britain's sovereignty from the decision-making review, saying the new inter- governmental conference would have only a limited agenda.
Some EU states will press for policies such as taxation, foreign and defence issues, social security and regional development, which now must be agreed unanimously by all 15 member states, to be subject to majority voting. This will be seized on by the Tories in the run-up to Thursday's European Parliament elections, but Mr Blair's aides pointed out that Britain would have the power to veto any changes in the voting system since they must be approved unanimously after the review.Reuse content