Euro beginning to flex its economic muscle power

FRANKFURT: Its leaders are divided and its economies are distressed, but Europe stands tall in one respect. The euro, its toddler currency, is growing into a cheeky rival to the dollar, one of the most visible symbols of America's power in the world. After a hapless debut in January 1999, marked by a long, stomach-churning slide in its value, the euro has made up virtually all the ground it lost against the dollar.It now trades at an exchange rate of about $1.15 per euro, only three cents shy of its value on the first day of trading. And, the euro has gained stature as a safe haven for investors and governments. The dollar remains the world's default currency the lingua franca of oil traders and bond dealers, and the bedrock of foreign reserves held by central banks from Brussels to Baghdad. But the euro is gaining, both as an attractive currency in which to issue bonds and as an alternative to the dollar for national foreign exchange reserves, notably in southeast Asian countries with dominant Muslim populations. With the US piling up vast deficits, economists say the euro has a chance to consolidate its gains. "US federal finances are coming under increased strain," said Niall C Ferguson, a senior research fellow at Oxford. "Money that had been invested in dollar-denominated assets is shifting to euro assets. For the euro to become a little brother to the dollar seems perfectly plausible." Such a role would vindicate the guardians of the euro, who watch over it from the European Central Bank's glass-and-steel tower in Frankfurt. They have always had grand ambitions for the currency, viewing it as an alternative to the dollar and an instrument to drive Europe's integration. Yet an almighty euro carries risks for champions of a united Europe. It could supply fresh ammunition to opponents of the monetary union in Britain, Sweden and prospective members. It could also open fissures between existing members that depend on exports and stand to suffer from a currency that rises too far, too fast. Last week, three euro countries, Germany, Italy and the Netherlands, reported that they were on the brink of recession. The introduction of euro notes and coins here last year was striking for how smooth the process seemed. NYT