Stabilising The Euro

It has been another difficult week in the short but troubled, life of the euro

It has been another difficult week in the short but troubled, life of the euro. The new currency remains weak on international markets primarily because of sluggish economic growth across the euro zone, when compared to the United States. But it has also been the victim of some spectacular own goals - not least the kind of loose talk engaged in this week by Mr Romani Prodi, president designate of the European Commission. He should know better than to signal that a member state might come under pressure to withdraw from the euro, if it did not remain competitive. But this is what he is reported to have said in relation to his native Italy, leading, predictably, to fresh selling pressure on the single currency. At its mildest, his comments could be described as an inexplicable gaffe - especially at a time when the currency continues to struggle on the financial markets.

The focus in the financial markets has been on how far the currency will fall and, particularly, whether it will drop below parity with the US dollar. The outlook for the currency is, of course, a matter of intense interest for many companies and investors and even for those going on holidays outside the euro zone to destinations such as the US and the UK.

But experience shows that currency forecasting is a notoriously tricky business. After all, how many of the highly paid analysts predicted that the euro would decline so sharply in the early months of its life?

However the precise value of the currency on the markets, at any given moment, should not be the primary focus of concern. Rather, it should be the continuing, lamentable absence of a clearly communicated strategy for managing the new currency and for co-ordinating economic management across the euro zone. Mr Prodi is only the latest in a line of senior politicians and central bankers to engage in dangerous talk about the new currency.

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The harsh reality is that Europe's policy makers have not adjusted to life in the euro zone and their diverse comments on its performance and on other issues are damaging the credibility of the new currency. To compound the problem, it is increasingly obvious that no-one has given much thought to the development and communication of a common policy approach to the new currency.

The European Central Bank cannot manage this task on its own; it needs the support of the member governments. Against this background, remarks made by the British prime minister, Mr Tony Blair, at the G8 summit last weekend, have been interpreted by some as indicating a new scepticism.

The truth is probably that the Labour government wants to keep its options open. It will watch and wait for some time before deciding whether to commit to a referendum sometime after the next British election.

Britain's attitude is a key concern for Ireland. At the moment, Irish exporters are benefiting from sterling strength against the euro, while our importers are suffering. An early sterling entry to monetary union would be the preferred option from the Irish viewpoint, removing the often damaging impact of swings in the value of the British currency against the euro.

Ireland should also put the case for better management of the euro. A currency lacking in credibility is in no-one's interest. Unless Europe's policy makers develop and communicate a clearer view, market confidence in the euro will remain low and it is unlikely to develop into the stable currency which had been promised.