Fears for the fate of the euro are much exaggerated

After the decisive French and Dutch rejection of Europe's constitutional treaty, the first response was, as it was bound to be, confusion and concern about the political direction of the European Union. The second response, however, concerns the single currency and the durability of the euro. Those who doubted or disapproved of the single currency in the first place lost little time in forecasting its demise.

After the decisive French and Dutch rejection of Europe's constitutional treaty, the first response was, as it was bound to be, confusion and concern about the political direction of the European Union. The second response, however, concerns the single currency and the durability of the euro. Those who doubted or disapproved of the single currency in the first place lost little time in forecasting its demise.

There are many reasons, however, why it is not only premature but unrealistic to sound the death knell of the euro. The first is that, although the constitutional treaty and the single currency are philosophically connected as tokens of Europe's intentions, there is no real material link. Neither project depends on the other. The constitution may, unwisely and unnecessarily, have gone into details of economic principles. But in the likely event that the constitution in its current form is abandoned, there is nothing with any bearing on the single currency that is lost. The two are separate.

Psychologically, of course, the rejection of the constitution has a bearing on the euro in the sense that international confidence in the currency is tied up with confidence in Europe. Here, though, the news is so far, and perhaps surprisingly, positive. Since the French referendum, the euro has lost three cents against the US dollar. This is a steep fall, but it is a long way from the free fall that might have been expected from such a swingeing rejection of the constitution.

This suggests the markets and currency speculators had built a French - and Dutch - "No" into their calculations and were not taken aback by the result. It also suggests the markets view European economic integration and political integration in separate categories, as they should. But it also illustrates the extent, all too rarely noted, to which the euro has been a success.

Despite dire forecasts before its introduction, the transition to the euro in every single country that adopted it was smooth. After initially plunging against the dollar, the euro has come to be regarded as a strong currency, and a reserve currency second only to the dollar. This is why the new and aspiring EU countries are so keen to qualify to join it, almost regardless of the economic pain this will entail.

The strength of the euro has been both a boon and a liability. It has been a boon, because it conferred credibility upon what is now termed, almost casually, the eurozone. It has been a liability because its rise against the dollar and other currencies raised the international cost of Europe's labour and Europe's exports, and arguably impeded the higher growth that might have reduced unemployment. In this respect, a lower rate for the euro against the dollar could be beneficial.

Inside the eurozone, there is much that is wrong with the stability pact as it currently operates. Those countries outside it, such as Britain, enjoy a measure of flexibility that those constrained by the European Central Bank lack. But the problems are nothing that a little less rigidity might not solve. And, even with its faults, the pact has fostered the solidity of the single currency by encouraging fiscal discipline among signatories.

The chief reason why the euro will endure, however, is that it is in no one's interests for it to fail. There can be no going back to national currencies for existing eurozone members, and aspiring members see it as their future. The many countries that have invested in it also have an interest in its success. And once there is a single clearing system for the euro, transactions within the zone will be even more convenient than they are now. However valid the political concerns about Europe, we expect the single currency to remain a thriving fact of life.