After plunging below 83 cents to the dollar in October 2000, the European Union’s common currency bounced back to read 11 points higher at 94 cents in mid-January. Mind you, those lauding the euro’s momentary comeback are forgetting the huge bailout of the common currency by government and financial institutions just months ago. However, with the markets being driven by fear and greed, little thought is given to logic or the evidence of the history of the euro since its inception, let alone previous doomed experiments with a single currency in Europe.
In September the Danes said no to the euro. In October the currency plunged and even had to be bailed out by competing nations buying up euros. That month a poll taken in Germany indicated that a third of Germans had no trust in the euro; given a choice, a majority would favor retention of their favored German mark. The latest British survey indicates that 72 percent of Britons favor keeping the pound sterling.
But, notwithstanding this mixed reception on the continent and a reluctance to embrace the euro, both the European and U.S. economies have worked, without design, in juxtaposition to favor the currency rise at this time.
It was German Chancellor Gerhard Schröder who shrugged off the euro’s abysmal performance last year by stating that a low euro fired up EU exports, which in turn revived the European economies out of recession into robust growth. Now, with the U.S. economy entering recession, a robust European economy is attracting capital flight from dollars to euros, thus pumping up the common currency and further appealing to international investors. So the cycle goes.
French Finance Minister Laurent Fabius recently stated, “For the first time in years, the rhythm of growth in Europe is higher than the American one” (AP, Jan. 17). Fabius went so far as to declare that the euro should now go to parity with the dollar! A far cry from just six months ago when skeptics had doomed the euro as a failure. Yet, one mild U.S. recession does not a common currency make. The euro has yet to overcome the intense resistance of a British and European public keen to preserve their sovereign currencies.