Iowa Public Television


Euro falling

posted on November 3, 2000

By most accounts the nation's economy is slowing to a sustainable, that is non-inflationary, pace of growth. Low inflation is not always a good thing for rural economies that are dependent upon the production of raw commodities. However, commodity prices were up this week on the prospect this year's bumper grain harvests might not be as burdensome as feared. It also appears the strength of the export-discouraging U.S. dollar may be ebbing as the beleaguered European currency known as the Euro begins to recover.

Financial markets have been trading the Euro since its launch almost two years ago, but the new bills and coins won't officially be issued until January 1st, 2002. To be sure, the weakness of the Euro reportedly has soured European consumers to the idea of surrendering their francs, marks, and lire in favor of the new currency.

Euro falling What started with great fanfare nearly two years ago has degenerated into a slow, steady decline for the new currency. Initially seen as a challenge to the international market power of the U.S. dollar, the Euro has survived, in part, only because of central bank intervention.

Last month, several governments stepped forward to buy Euros and inject new life into the moribund currency. Indeed, at one point last week, the Euro slid to a new low against the dollar ... down 29 percent since its launch.

Peter Rashish, The European Institute: "I think it will take a good five years before we really have a sense of whether the Euro is going to really be any kind of threat to the dollar ... "

The strength of the Euro is closely watched by U.S. farm and business interests worried about sustaining American exports. Besides trade, the Europeans had hoped a single, unifying currency would allow them to challenge the U.S. on a host of economic fronts. They thought a strong Euro would goad investors into drawing assets out of the dollar to back the new currency. They also hoped the Euro would siphon new investment from the U.S.

To date, it hasn't happened, mostly because the U.S. economy has remained so strong..

Economist Rashish equates the continent's conversion to the Euro with competing in a triathlon. Launching the currency two years ago was the swimming event. The current transition period is the bicycle race. What's left – continued government reform and the alignment of economies – is the marathon.

Peter Rashish, The European Institute: "If Europe really takes the right cue from the Euro and engages in all these reforms and finishes this leg of the triathlon, I think that Europe might then be fit enough to face the United States in the Ironman Competition."

Tags: European Union finance markets money news