Dealing with Deconvergence

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Judging by the way the euro tumbled as much as 3% on currency markets last week, you might think that voters in France and the Netherlands had voted against the six-year-old European currency, rather than the planned new E.U. constitution. Propelling the decline was a report quickly denied in the German newsmagazine Stern that Finance Minister Hans Eichel and Axel Weber, the head of the German central bank, had discussed the prospect of dissolving Europe's monetary union at a meeting in late May. Weber dismissed the report as "absurd," and most market watchers and economists agreed. "The talk will continue for a week or two then go away; the euro's here to stay," says William Davies, head of European equities for the London-based fund manager Threadneedle Investments.