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Euro battles for respect
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June 2, 1999: 8:21 a.m. ET
As new currency sinks to record lows, defenders close ranks; boon for Britons
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LONDON (CNNfn) - They call it the euro-zone. But for the 11 nations and 300 million consumers participating in Europe's unprecedented experiment with monetary union, the single currency's slouch toward parity with the dollar might seem more like a journey into a monetary Twilight Zone.
When once, in the heady days following its Jan.1 launch at a level of $1.17, the mighty euro could do no wrong, today the beleaguered denomination can seemingly do no right.
Five months -- and an 11 percent depreciation -- after the euro's much-hyped launch, the BBC noted in an evening newscast this week, passengers on the cross-channel Eurostar train from London to Paris will be hard-pressed to find any euro-quoted prices for baguettes and other fare in the train's snack car.
Ask train staff why this is the case and they'll tell you that the euro still hasn't caught on with the public as a viable denomination on a par with sentimental favorites such as the mark or franc.
Battling for a popular foothold
Europeans were -- and continue to be - inundated with colorful pamphlets and advertisements on what the novel new currency means for them. Yet despite the deluge of data, the currency has yet to gain a foothold in the consumer conscience, economists say.
For most Europeans, the euro remains a phantom currency, existing in the form of big business bank transactions and a smattering of euro-denominated bank accounts, but little else.
Yet for a currency that doesn't exist yet as a wallet-ready coin or bill, the euro is causing its fair share of headaches these days.
As the currency plumbed a new liftetime low Wednesday of $1.0356 -- prompting feverish calls in some quarters for European Central Bank intervention -- the currency's embattled defenders tried to deflect the blame for the slide from the euro itself.
"Sure, right now the euro is very weak, but you must ask yourself here, is this not perhaps happening because the American economy is performing especially brilliantly (at a time when) European industry has been hit hard by the global economic slowdown?" asked Martine Aubert, a Paris-based analyst at Crédit Commercial de France.
Aubert and her peers across the euro-zone echo a common refrain: that the euro's weakness stems from a mix of problems ranging from the geopolitical (war in the Balkans), to the economic (a yawning growth gap between the United States and Europe) to the practical (Europe's structural rigidity, marked by a lack of labor mobility and high taxation.)
And almost uniformly, officials from business and industry blame their governments -- and not the ECB -- for bungling the launch of the greatest monetary venture in decades. A recent decision by euro-zone finance ministers to relax Italy's trade deficit ceiling under a Euro-stability pact provoked special ire among Europe's banking and business chieftains.
"The weakness of the euro is a symptom of a budgetary policy which is not going in the right direction," said Renate Hornung-Draus, the director for European and international Affairs at the Association of German Employers. "German business is concerned about this development. This Italy decision has given a signal to financial markets which may be interpreted in a way that the euro stability pact is not being taken seriously any longer."
Nonetheless, Hornung-Draus acknowledged the weak euro, in the short term, is a boom to German exporters -- a fact not lost on the ECB. About 55 percent of Germany's metal processing, manufacturing and automobile exports last year were to European Union countries, including several not within the euro-zone.
In Britain, the combination of a weak euro and a remarkably strong pound is giving U.K. consumers extra punching power by making their pounds go further in euro-zone countries.
With the summer holiday season approaching, British consumers may be more inclined to give in to their traveling whims, according to Eunice Lau, an economist with the Confederation of British Industry.
"They will find they will have more money," she said. "If you look at people planning for their holidays, they actually plan well in advance, so this is a windfall…This will really encourage people to take more weekend breaks."
As for British citizens being able to pay less for imported Euro-zone goods, Lau said that will depend on whether retailers are willing to pass lower costs on to store shelves.
Others note the euro slide is having the opposite effect on Continental vacation planners.
"People over there are leaving it (to) later this year to decide whether to come to the U.K.," said Kurt Janson, the policy manager at the British Tourist Authority. "That's particularly true of Germany."
--By staff writer Douglas Herbert, with additional reporting by Mark Odell
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