"The Euro’s Surprises"

Bénassy-Quéré, Agnès (2000) "The Euro’s Surprises". In: UNSPECIFIED, Maastricht, The Netherlands.

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Abstract

On 22 September last, the ECB and the Fed intervened to support the euro, which had fallen to $0.84. Two years previously, most economists had guessed that the euro would be a strong currency. They were optimistic about the outlook for growth in Europe and worried over the prospects of America’s trade deficit. Accordingly, they felt that the euro would provide an attractive alternative investment to the dollar. In practice, the strength of the American economy, fired by the New Economy, has attracted record investments across the Atlantic. Trends in the real economy continue to play a vital role in setting exchange rates. The capacity of the euro-zone to enter this “New Era” will largely determine the future parity of the single currency. In the short term, better predictability of European policy would help to reduce uncertainties that currently penalise the currency.

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