The Euro — How is it Working?

  • Norbert Walter


The euro has been a success story in many respects. By all criteria, the European Central Bank has done an excellent job. Despite the deteriorating short-term inflation outlook, long-term inflation expectations are in line with the ECB 2% target. Long-term interest rates remain relatively low thanks to a pre-emptive tightening of monetary policy since November 1999. Although the slowdown triggered by the cooling of the US economy is becoming increasingly visible in the European economic indicators, it nevertheless remains true that intra-European trade is benefiting from the elimination of exchange rate risks. A unified European capital market is emerging. International bond issues in euro are almost as important as dollar-denominated international bonds. There is only one weak spot: the exchange rate has substantially declined reflecting a clear overshooting compared with the development of the fundamental factors. The reasons for this will be discussed below.


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© Betriebswirtschaftlicher Verlag Dr. Th. Gabler GmbH, Wiesbaden 2002

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  • Norbert Walter

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