http://news.bbc.co.uk/hi/english/events/the_launch_of_emu/euro_latest/newsid_297000/297738.stm
BBC report Tuesday, March 16, 1999 Published at 13:54 GMT
Confidence returns to euro
Currency markets have been selling euros
The euro has stabilised after
falling sharply against the dollar
following the crisis resignation of
the entire European Commission.
By early afternoon, the currency
had recovered most of its overnight losses, and was
trading at $1.0907, at 1335GMT. It is weaker than it
was 24 hours ago, but above its overnight low of
$1.0816.
The euro fell by over a cent in
overnight trading in the Far East
and New York, to near its lowest
level ever against the dollar.
The euro is also weaker
against the yen and the
pound sterling, moving to
just above £0.67.
Analysts expecting the
European currency to
continue to fall, with one
dealer saying he expected
the dollar to reach parity
with the euro by the end of
the year.
The euro reached an
all-time low of $1.0782 on
4 March. It has been falling steadily since its launch
at a level of around $1.18.
Euro already weak
In three months, the euro has lost nearly 10% of its
value.
When the single currency was
launched in January, it was
supposed to be strong and stable,
the centrepiece of monetary union.
Europe's trade position was strong
and it had huge currency
reserves.
But both political and economic events have
conspired to weaken the new currency.
The euro has been hurt by the weakness of the
European economy compared with the continuing
boom in the United States.
Exports boost
And even before the resignation of
the European Commission, the
disagreement between the
European Central Bank and the
former German finance minister
Oskar Lafontaine over whether to
cut interest rates damaged confidence.
"I think we'll probably head towards $1.07. There's a
few things at play at the moment: the sheer strength
of the US economy, the weakness in Europe," said
Patrick Bennett of Warburg Dillon Read.
A weak euro could boost European exports, but it
could also threaten stability and force the new
European Central Bank to raise, rather than lower
interest rates to defend the currency, thus hurting
economic growth in Europe.
Help in the long run
Some dealers hope that, in the long run, the
scandal could strengthen Europe's political system,
which would ultimately help the euro.
"The commission was already regarded as
incompetent. With this resignation, it's actually like a
system cleansing," said a European bank dealer.
Former UK Chancellor Kenneth Clarke said he did
not believe the crisis would affect the credibility of
monetary union.
"I don't think the situation has any relevance to the
euro whatsoever. The market will react badly for a
couple of days, but once the dust has settled they
will realise it has nothing to do with the euro," he
said.