Yet another crack in the Euro-dam:
May 30, 2005, 11:41PM
French action rattles euro
With rejection of EU constitution, future is cloudy for currency
By MARK LANDLER
New York Times
FRANKFURT, GERMANY - While France's rejection of the proposed European Union constitution was a stinging rebuke to its own leaders, it could have painful consequences for economic integration in Europe and for the most tangible symbol of that unity: the euro.
By throwing Europe's political future into disarray, the vote could undermine the currency's stability — not this week or next, but down the road, as it seeks to expand to more countries, analysts said.
The euro wobbled in trading on Monday, hitting a seven-month low of $1.246 to the dollar. It has fallen steadily against the dollar in recent weeks, as traders expected a negative vote in France and steeled themselves for another rejection in the Netherlands on Wednesday.
Few experts are predicting a full-blown crisis for the euro, which is safeguarded by the politically independent European Central Bank. France's refusal to ratify the constitution will have little impact on the day-to-day running of the monetary union, or on the maze of regulations that govern the world's largest trading bloc.
Still, as Paul De Grauwe, a Belgian expert on the currency, put it, "Something psychological has changed."
Like many economists, he believes that the long-term viability of the euro hinges on the gradual political integration of the countries that use it — a prospect that, for now at least, is dashed.
"Can the euro survive without a political union?" De Grauwe said. "I have my doubts."
The French rejection also has troubling implications for Europe's economic future. The vote, analysts said, was essentially a protest against President Jacques Chirac and his government for not doing enough to protect the French from the global economy's crosscurrents.
With politicians in Germany and Italy under attack for similar reasons, they said, there is a risk that the Continent's largest economies could veer off into protectionism and state intervention, which could deepen their budget deficits and hurt their efforts to revive stagnating output.
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