"I'm Melting, I'm Melting!"

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Europeans — or more particularly the eleven countries that make up the euro zone — just can't seem to make their minds up about the euro. Thanks to a 24% decline against the dollar since it was launched in January 1999, the euro has become a more competitive currency. As a result, exports are up 20% on last year, powering stronger growth and creating jobs. And despite higher import costs, inflation remains in check at a paltry 2%, a figure low enough to gladden the heart of any central banker. So Europe has some cause to rejoice. Instead, last week in Brussels, Euroland finance ministers took the unprecedented step of issuing a joint statement of support for their weakling currency The currency's value, they said, did not reflect the "strong fundamentals of the euro area."

Maybe so, but is that cause for concern? The European Central Bank in Frankfurt has said it is, but last week refrained from any intervention or interest rate adjustments to support the euro, which at week's end was trading more than 3¢ up from its all-time low reached on May 4 of $0.8844. The big question is whether euro-zone governments can also keep their nerve as the euro suffers. Prestige is at stake and there is political risk too. In Germany, where the strong deutsche mark was a source of national pride, the weakness of the euro has people grumbling. A recent poll by Forsa in Berlin has revealed that four/fifths of Germans have little or no faith in their new currency; a BVA poll published last week in France found that 58% of the French are worried about the euro's weakness. "With constant headlines about the euro's decline, it's really no wonder people don't have much trust in the currency," says Forsa board member Sibylle Appel. "The decline is something people notice more than articles about the advantages of the euro in the business sections of the newspapers."

German Chancellor Gerhard Schröder was able to move the chief boon of a sagging euro onto the front pages and television screens last week. Newly released April figures showed Germany's chronically high unemployment rate falling below 10% for the first time in almost five years thanks to export-led growth. "We should not cry when our exports benefit," Schröder said in a television interview, adding that he was "not concerned" about the euro's current value.

It isn't just Germany that is profiting from the weak euro. Pekka Ylä-Anttila, research director at the Research Institute of the Finnish Economy in Helsinki, says the cheap euro has been a tonic for Finland's strongly export-based economy, powering a torrid annual growth rate of 5%. Along with Nokia's mobile phones, exports of Finnish paper pulp have boomed in recent months as their prices fall against Swedish, Canadian and American competition. But the weak euro can also induce a false sense of competitiveness. "The problem is that it may be too easy for them to export," says Ylä-Anttila. "We're not sure whether these companies realize that their happy situation could end — and whether they're making adequate preparations for when it does."

If they stop worrying and learn to love the weak euro, euro-zone governments and businesses will indeed have to be careful they don't lull each other into a false sense of economic security. "In Germany we've had two major economic events in the last 15 years: reunification and the introduction of the euro," says Stefan Schneider, a Deutsche Bank economist in Frankfurt. "In both cases, politicians painted very rosy scenarios, and they still haven't panned out as promised." The danger in Euroland is that the current cyclical growth spurt will persuade governments they can postpone much-needed structural reforms. Warns Horst Siebert, director of the Kiel Institute of World Economics: "To establish conditions for the new economy, more action has to be taken on taxation, labor flexibility and revamping social security systems."

That action has yet to be forthcoming. Meanwhile there's that prestige problem to address. Even though there is no measurable economic downside to a weak euro at present, it just doesn't look good for the icon of a united Europe to be battered on world markets. "The collapse of the euro would be politically very embarrassing, and no one wants that," says Jean-Pierre Hellbuick, head of strategic investments at the French insurance giant AXA. Despite the bluff confidence of Schröder that the euro will recover on its own, French Prime Minister Lionel Jospin — along with a gaggle of frustrated currency traders — has urged that central bankers make a concerted intervention to bolster the euro's value.

Seeking to insulate the bank from such parochial influence, E.C.B. president Wim Duisenberg on Thursday said "The only time you'll hear me speaking about an intervention is when we intervene." Though some market analysts see prospects of support for such an action from the banks of Japan and the U.K., U.S. monetary authorities are thought to have little interest in joining such an effort.

In any case, though an intervention might stanch the negative speculative pressure on the euro, in the absence of serious structural reforms, European and foreign capital markets would remain unconvinced about the medium and long-term environment for productive investment. "What we've seen so far isn't quick enough or encouraging enough to bring the euro up," says Jose-Manuel Amor, a market analyst with AFI in Madrid.

The paucity of such reform in Europe is one reason for the buying binge of European companies outside the euro zone; witness Unilever's recent $18.4 billion bid for American food giant Bestfoods. A cooling American economy could ease that flow or even reverse it back toward Europe, at which point central bank action could give it an added fillip. But Europe's politicians have no power over the strength of the U.S. economy. What they can do is push through meaningful economic reforms that would encourage European companies to stop investing their euros abroad and start spending them at home.

With reporting by Sarah Davis/Paris and Regine Wosnitza/Berlin