THE current "euro optimism" in financial markets is likely to dissipate as investors focus on the remaining obstacles to the introduction of a single currency, according to Mr Eoin Fahy, senior economist at Ulster Bank Capital Markets. While arguing that the single currency is likely to be introduced more or less on schedule in 1999, Mr Fahy warns that the markets are currently ignoring the remaining problems.

"The French government deficit is likely to be well above the maximum allowed under the Maastricht Treaty, while there is also a relatively high risk that the German government's deficit is too high," he said. The Belgian national debt level is also too high "and Ireland faces the eternal problem of its relationship with sterling".

As investors focus on these factors, the recent convergence of long term interest rates is likely to reverse, he said, and the deutschmark will strengthen again.