financialmail.co.uk
Y2K bug will savage euro
Matthew Fletcher, Mail on Sunday 18 July 1999
he beleaguered euro is poised to plunge to new lows because of fears that banks in southern Europe will not be ready to beat the millennium computer bug.
City experts forecast that big international investors will plough billions into US dollar-denominated assets this autumn in a 'flight to quality' out of the single currency.
They fear that financial institutions* in southern Europe are failing to take the necessary steps to avert the huge problems looming if computers are not adjusted to recognise the date change to the year 2000.
Fresh slides in the euro's value would also make the pound even stronger, further hammering British exporters' ability to compete with European rivals.
The warning came after European Central Bank chief Wim Duisenberg hinted last week that the 11-nation eurozone's interest rate may be raised from its present 2.5% to help the euro, which is on the brink of parity with the dollar. It closed the week at $1.0199, compared with $1.06 in May. Some City experts predict that the euro could fall below 90 cents by the end of the year.
Stephen Lewis, chief economist at broker Monument Derivatives*, said: 'The markets aren't focusing on the millennium bug issue yet, but they are likely to by the autumn.
'This could be a political issue for the eurozone nations. Banks in Germany and the Netherlands, which are better prepared for the millennium bug, will be reluctant to extend loans to southern European neighbours, forcing them to call in loans to their own corporate customers.'
Computer experts say year 2000 problems lurk among regional and state-owned banks in Italy, Spain and Portugal. Robin Guenier, head of the unofficial bug fighter Taskforce 2000, said: 'There is a strong chance that some of them focused on upgrading computer systems to deal with the euro and left the millennium bug on the back burner.'
He reckons that investors will become nervous because of the lack of official information on how ready European financial institutions are to meet the challenge.
The single currency links all 11 eurozone countries, so problems in one will affect its value for the rest.
More danger looms from the East. Stuart Thomson, economist at stockbroker Sutherlands, also expects a tidal wave of money to flood out of Far Eastern currencies, which are most exposed to year 2000 financial chaos, and into the dollar - taking it even higher against the euro.
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