BUSINESSWEEK ONLINE : SEPTEMBER 18, 2000 ISSUE
INTERNATIONAL BUSINESS Commentary: A Weak Euro Isn't a Failed Euro The euro-zone economy may be motoring along nicely, but the beleaguered euro gets weaker by the week. So sickly is the single currency that it doesn't even respond to higher interest rates. The European Central Bank has tightened monetary policy six times since last November, yet the euro has continued to slide. On Aug. 31, it plunged to its then-lowest level against the greenback--a miserable 88.38 cents--just minutes after the ECB hiked rates by 25 basis points. On Sept. 6, it fell below 88 cents. Understandably, many Europeans are wondering whether they've been sold a pig in a poke. The euro hasn't turned out to be the reliable store of value they were promised. According to a recent poll, nearly two-thirds of Germans wish they'd stuck with the mark. The euro's weakness certainly is a worry. It raises the price of imports and thus risks fueling inflation. And it saps public confidence in the new currency, which is due to start appearing in the form of notes and coins on Jan. 1, 2002. Adding to the dismay is the lingering fear that the ECB will never be able to protect the euro the way the Bundesbank protected the mark. BOND BOOM. But the gloom obscures the fact that the euro is already having a remarkably beneficial effect on Europe. It has stitched together 11 countries' financial systems, decreasing the cost of capital by creating a deeper, more liquid market. Investment bankers reckon that European companies now pay about half a percent less for their capital than they would if the euro didn't exist--a big difference when you're talking billions of dollars. As a result, companies have issued stocks and bonds at record-breaking levels. Indeed, more euro-denominated than dollar-denominated bonds were issued last year: a staggering $600 billion, according to Capital Data Ltd. The money raised is funding acquisitions. As a result, the euro zone economy is being restructured and companies globalized. Vodafone AirTouch (VOD) CEO Chris C. Gent says it would have been far harder to fund his $183 billion bid for Mannesmann (MNNSY) had it not been for the euro. The phone titan largely paid for Mannesmann in euro-denominated shares. The arrival of the euro has companies competing against rivals all across Europe for capital. ''That means they have to pay more attention to what investors want, which is higher returns,'' says Robin Marshall, research director at Chase Manhattan Bank in London. Institutional investors figure the euro will add as much as 10% to the value of European companies by 2004. BIG PROD. The euro puts pressure on governments, too. It makes it impossible for euro-zone countries to boost competitiveness by manipulating monetary policy. Instead, they must cut taxes, streamline social security systems, and make other reforms. So great are the overall benefits of the single currency that it looks as though the euro-skeptic Danes will sign on in a referendum on Sept. 28. Even Britain--the last big holdout--may eventually take the plunge. Sure, the euro is weak. But a failure? No way. By David Fairlamb Fairlamb covers the European economy from Frankfurt. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The Economy: Growing Like Gangbusters CHART: Europe's Race with the U.S. Commentary: A Weak Euro Isn't a Failed Euro INTERACT E-Mail to Business Week Online

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