Strong euro confounds critics

Published on Sunday 31 December 2006 03:05

THE surging euro is confounding critics who once doubted it could rival the US dollar, the pound and the Japanese yen.

In 2006 it has surged in value, rising nearly 14% to 20-month highs and is about 4 off its all-time high of $1.36 in December 2004. It is a strong turnaround from an initial plunge to as low as 82 in 2000.

"When it first started, and even before it hit markets properly [in 1999], everyone was very sceptical and negative on the whole thing, and that's exactly the performance we saw," said David Jones, chief currency analyst for CMC Markets. "The last three years have turned that on its head, reaching and then surpassing the 1-1 ratio in 2002 and it has gone from strength to strength."

However, some consumers still grumble about using the euro, with 41% of people in the 12-nation eurozone saying they have difficulties using it, according to a recent Gallup poll for the EU. Many still calculate large purchases in the old currencies.

And having a single currency hasn't closed the growth gap between Europe - where 1% or 2% annual growth constitutes an upswing - and more dynamic economies in the United States and Asia.

The euro has also increasingly gained acceptance as a foreign currency reserve in the coffers of companies and governments from China to the Middle East.