Twenty months after its start the new Euro currency's reputation is not at its best. In less than two years its cross rate against the Dollar has lost more than 25% and is now below 90 Cents. Thus Wim Duisenberg of the ECB has clearly lost the first round in the challenge between the world’s most powerful central bankers. But the economy in Euroland might be better than it seems. Thanks to the progress in integration, growth rates are rising beyond expectations. Important financial reforms are underway in Germany and France and will soon develop their positive impact on private demand. Even on the stock market Europe has finally found an answer to the NASDAQ challenge, creating its own circuit of most dynamic “New Markets” for technology shares. Started first in 1997 in Germany, the New Market has received an almost enthusiastic welcome by investors and is now present in six countries with over 400 companies. The Swedish OM Gruppen´s hostile bid on the London Stock Exchange is another surprising episode of the process that sees Europe’s major financial places now preparing to merge into one or two integrated stock exchanges, willing to play a lead role in the challenge for the world´s first global 24-hours stock market. Thanks to the effects of integration, competition is growing for companies as well as for governments, thus producing benefits for consumers and citizens. All together these achievements are ensuring that the next decade in world economy could as well become a European one.
The Euro´s hard debut
Wim Duisenberg, the president of the new European Central Bank, had surely wished a better start for his new currency. Due to the strong economy and rising interest rates in the US, his protégé, the Euro has performed weakly in his first two years and early in 2000 it has even fallen below parity with the Dollar. On the whole the new European currency has lost over 30% of its value since its start in January 1999. Thus the first round in the challenge between the world’s most powerful central bankers has been won by Alan Greenspan. By raising the US tax rate he has forced Duisenberg to follow, if he wanted to avoid an even worse performance of the Euro. Though most European economies are far from US growth rates, the ECB has had no choice but raising the interest rates in order to defend the currency.
Alarmed by growing inflation, especially in booming peripheral countries such as Ireland and Finland, at the end of August the ECB Council has decided another step in order to defend the currency, raising its tax rates by 0,25%. The reaction of the markets, however, was not as expected and the next day, on September 1st, the Euro has touched another all-time-low with the Dollar. The reputation of the new European currency is still suffering. But the challenge to the Dollar as the world’s first reserve currency has been limited also by the fact, that the new currency is still virtual: people will put their hands on the new Euro banknotes only in January 2002.
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