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EURO: WEAKNESS OF THE SINGLE CURRENCY DESCRIBED AS "CYCLICAL".

Summary:The persistent weakness of the single currency against the Dollar is regarded as a "cyclical" phenomenon posing no threat of inflation, according to a number of European officials. Sirkka Haemaelaeinen, a European Central Bank (ECB) Board member, suggested on July 2, that the depreciation of single currency is largely perceived to be a cyclical phenomenon and not a sign of structural problems or of a lack of credibility. The Organisation for Economic Cooperation and Development (OECD) has struck a similar note, arguing in its latest four-monthly report on "Financial Market Trends" on July 1, that investors retain their confidence in the Euro zone, despite its current weakness. And Eugenio Domingo Solans, another ECB Board member, suggested on July 2 that the depreciation of the single currency does not even pose a serious threat of resurgent inflation in the Euro zone.

Economic and Monetary Affairs Commissioner Yves-Thibault de Silguy reiterated his belief on June 29 that the 10% decline in the value of the Euro since its launch on January 1 is due to objective causes: on the one hand, growth differentials between the European bloc and the United States, and on the other, the consequences of the war in Kosovo. Based on anticipated developments, Commissioner de Silguy even goes so far as to estimate that the single currency has a "margin for appreciation".

No transition period in Germany.

Germany plans to replace the Deutschemark with Euro notes and coins on January 1, 2002, without a transition period, according to proposals revealed on July 5 by the Finance Ministry Working Party responsible for the dossier. The scenario for the final transition to the single currency provides for a maximum six-month period (January 1 to June 30) for double circulation of national currencies and Euro notes and coins. The Commission and countries participating in the Euro are examining the technical and practical feasibility of curtailing this transition period.

British scepticism hardens.

A majority of British population is opposed to the adoption of the European single currency, according to a poll published on July 3 by the Daily Telegraph. 66% of those questioned (compared with 60% in the previous poll) expressed a wish to retain Sterling. The survey found that only 30% of respondents would vote for entry into the Euro zone if a referendum were to be held in the coming months. Prime Minister Tony Blair has reiterated that his Government has no plans to organise a referendum before the next General Election, likely to be held in 2001.

Slump in enthusiasm of French SMEs.

The enthusiasm of French small and medium-sized enterprises planning to change rapidly over to the Euro before the 2002 deadline has all but dissipated since the advent of the single currency in January. They have consequently reviewed their priorities to focus instead on the millennium bug and reducing working time. A survey conducted by the CSA Institute found that a majority of the SMEs consulted appear resolved to defer their passage to the single currency until 2002, so that it coincides with the entry into circulation of Euro denominated notes and coins.

Preparations of three accession candidates.

Poland is by far the candidate for EU accession farthest advanced down the road towards Euro membership, since it has set itself the target of participating in the single currency within two to three years of its entry in to the European Union. Hungary and the Czech Republic have preferred, at this stage not to set a precise deadline. These aspirations were aired at the Economic Summit of Central and Eastern European countries in Salzburg, Austria, on July 1, addressed by the Governors of the Central Banks of these three candidate countries.
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Comment:EURO: WEAKNESS OF THE SINGLE CURRENCY DESCRIBED AS "CYCLICAL".
Publication:European Report
Geographic Code:1USA
Date:Jul 7, 1999
Words:613
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