Chances of euro being axed slim

THE dollar hit a fresh nine-month high point against the euro yesterday, strengthening the belief that the euro could be dropped by some countries.

But like the immortal words of Mark Twain, rumours of the euro’s death have been greatly exaggerated.

It must be worrying, however, for the Eurocrats being forced to deny any threat to the currency which formally came into being in 1999 and which became a live currency on January 1, 2002. Weekend reports suggest that if the Germans, French or Italians were to quit the currency, the euro would be mortally wounded.

The chances of that happening are pretty slim, but IIB Bank chief economist Austin Hughes believes there is more than a zero chance of the euro being dumped.

“It is no more than a 5% risk, however,” he said.

Already The Wall Street Journal has jumped on the anti-euro bandwagon and has urged investors of the need to look at the possibility that some EU members might decide to opt out.

It is significant that a lot of the coverage is coming from Britain, a country that is still hostile to the idea of ever joining the single currency.

The Financial Times said “the euro was a heroic project” adding, however, that the unease surfacing from within Europe itself, is already starting to undermine the currency’s very future.

Last week, Italy’s welfare minister Roberto Maroni caused serious ripples across Europe, when he called for a return to the lira.

It has also been known for some time that Germans are growing restive about the single currency.

Well over 50% of Germans hanker for the good old days of the strong mark. They ignore the fact that they are paying for reunification and that its own internal policies are contributing to the current malaise, including 10% unemployment.

Italy is in deep trouble economically at present and transitionally devalued the lira when the economy was in trouble.

Some years back, when the Irish economy was booming a strong case existed for higher interest rates to curb inflation.

When we signed up for the euro we jettisoned that right and indeed the right to devalue our currency if we saw fit. That was on the monetary side. In fiscal terms, the move to similar taxation policies and an opening up of borders to allow free movement of goods and capital within the expanding EU was part and parcel of building an integrated Europe.

Some of that process was brought to an abrupt halt when the French and the Dutch both voted No to the ratification of the EU constitution.

For the first time, there are fears that jobs will be lost to migrants from the new member states and that living standards are being undermined.

At this stage, however, most objective analysis suggests that this unease will pass as economic reforms build prosperity back up.