EU Scandal

Henry C.K. Liu hliu at mindspring.com
Tue Mar 16 07:18:54 PST 1999


Entire EU Commission resigns en mass yesterday.

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.



More information about the lbo-talk mailing list