This could be the time when the euro falls to parity with the dollar, and possibly below. Its fate will be determined as much by what happens in the US as by the economic news coming out of Europe, although much will also depend on the willingness of European politicians and central bankers to keep quiet. They have a knack of making matters worse by talking out of turn.

The euro is the currency of an economic area with a population of nearly 300 million people and one-sixth of the world's gross domestic product. Both figures will increase as new countries adopt the euro. After the US dollar, but ahead of the Japanese yen, the euro is the second most widely used currency on a worldwide scale.

The exchange rate of a currency is the most visible and perhaps politically most relevant indicator of a currency, and thus can easily be exploited by politicians and the markets. In particular, the euro's fall against the dollar in the first months of 1999 attracted a great deal of headline attention, and caused a certain degree of joy among those eurosceptics already convinced that the euro was a flawed endeavour. The exchange rate of the euro to the dollar soon became entangled - indeed synonymous - with the wisdom of EMU per se.

It is necessary to answer two pertinent questions. First, by how much has the euro really fallen and second, does it prove that EMU cannot work?

Most frequently, comparisons are made between the introductory exchange rate of the euro against the dollar of $1.17 on January 1st last, and its lifetime low of just above $1 in recent days. However, both January 1st and the euro-dollar exchange rate are questionable benchmarks to assess the relative strength of the euro. In fact, they are benchmarks which may obscure more than they reveal.

Bundesbank president, Mr Ernst Welteke, for instance, has told traders to ignore the euro's launch rate of $1.17 as a reference level for the new currency. He has argued that they should focus instead on the value of the euro's component parts at the start of 1998. Back then, it would have taken about $1.08 to buy one (synthetic) euro. Set against that benchmark, even the drop to just above $1 is hardly dramatic. The weak euro has been a blessing in disguise for the euro zone. The last thing it needed in early 1999 was a "strong" euro, hitting its exports and hampering its economic upturn. And eurozone interest rates are low, both historically and relative to those in the UK and US. If growth prospects in the euro zone continue to improve, then a reversal of the trend, pushed along by the impact of the massive and still growing US trade deficit, must occur. Then, a strengthening of the euro will no longer be a distant prospect but an unavoidable reality.

The very least one can say about the euro's supposed dramatic falls is that it proves it is behaving as a normal currency, offering a reflection of diverging economic patterns and prospects. Recently, the sentiment towards the euro has been affected by the German government's decision to help rescue the construction company Philipp Holzmann and its opposition to Vodafone's hostile takeover bid for Mannesmann. Together these are seen as indicative of a reluctance of the euro zone's major economy to undertake structural economic reforms.

There has been criticism too of the European Central Bank's latest decision to increase interest rates from 2.5 to 3 per cent by some economists and journalists. The point being: what is euro land doing after seven years of deflation! Deflating some more?

The debate on the so-called weak euro has produced many contenders for the prize for economic nonsense. The common fallacy is that a low value of the euro on the foreign exchange markets means that it is a bad currency, with the corollary that a high value makes it a good currency.

It is not a sign of disaster if it falls; nor is it a sign of triumph when it rises. Markets can be wrong and are prone to overshooting and undershooting. But not nearly as wrong as politicians and commentators speaking from the sidelines.

Economist Dr John Ryan is a principal consultant with PA Consulting in Dublin.