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Euro at Lowest Level Against Dollar Since January Debut

By Anne Swardson
THE WASHINGTON POST

The euro sank Monday to its lowest level yet against the dollar, bottoming at just below $1.07. When it was created out of the national currencies of 11 nations on Jan. 1, the euro was valued at $1.17.

The decline has been seen in part as a reaction to the NATO bombing of Yugoslavia over the breakaway province of Kosovo -- the latest blow to Europe in what have been a really rotten few months. At times of international turmoil, Western investors tend to favor currencies perceived as safe and countries perceived as insulated from strife. The U.S. dollar nearly always strengthens.

Investors also worry that because the euro countries -- Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain -- have linked their economies tightly together, the difficulties experienced by one could affect the others.

“There may be fears that as a result of the military action you get a load of immigrants leaving (that) part of the world and going to Greece or Italy, and pushing up their budget deficits,” said Gwyn Hacche, European economist for the investment firm HSBC James Capel in London.

Italy is a euro participant; if it had to spend more to accommodate an influx of refugees, its budget deficit could exceed the limit required for euro membership. Greece is not a member of the euro, but wants to be.

The Greek drachma fell sharply Monday against both the dollar and the euro, as did the currencies of Yugoslavia neighbors and new NATO members Poland, Hungary and the Czech Republic.

Some Europeans worry that a weak euro shows a lack of confidence in a new currency, which optimists hope could someday rival the U.S. dollar in world importance. However, the euro’s decline should boost European economic growth by reducing the price of European exports in overseas markets. The cheaper European imports into the United States help restrain U.S. inflation.