Going Down

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In economic, financial and business terms, the euro's first 11 months have been a rousing success. As predicted, Europe's new single currency has changed the face of finance in Euroland. Explosive growth in the corporate bond market is fueling a boom in the mergers and acquisitions activity necessary to restructure corporate Europe. Medium-sized companies and would-be start-ups once reliant on local bankers for funds can now go directly to institutional investors.But from its birth, the euro has been viewed by the E.U.'s leading politicians as an icon of the Continent's newfound unity and ability to stand up to America. Hence the pride of French President Jacques Chirac and German Chancellor Gerhard Schröder when the euro began life with a robust exchange rate value of $1.17.

And hence the gnashing of teeth last week when, briefly, the euro was worth less than a dollar. The irony is that although it is politicians who care the most about the exchange rate, they seem the most likely culprits for their currency's latest dive. European Central Bank President Wim Duisenberg noted archly that Schröder's bailout of German construction giant Philipp Holzmann "does not enhance the image that we want to have of being an increasingly market-driven economy."

Indeed, foreign investors do have growing doubts about Euroland's readiness to restructure its still too cozy economy. As long as that is the case, the euro will suffer--and so will its political fathers. But the weak euro will help bolster economic activity by boosting exports. And the euro zone's bond and stock markets will become more active as they shrug off the exchange rate woes. Too bad the politicians can't emulate that lack of concern.