EU Finance Ministers Aim to Bolster Euro

The EU finance ministers, who have been at pains to ensure that the political fiasco after the French and Dutch rejected the constitution does not take on an economic dimension as well, sought at their two-day meeting to show the EU at work rather than in turmoil.

However, Luxembourg Prime Minister Jean-Claude Juncker, who hosted the ministers meeting, acknowledged that the political crisis having an economic impact.

"It's true that at first sight the current state of Europe doesn't inspire confidence either amongst domestic consumers or foreign investors who are looking at us from afar and are finding it more and more difficult to understand," he told journalists.

But he insisted that the best way to restore confidence was to show business as usual in the run up to a June 16-17 summit of EU leaders in Brussels, which will decide the fate of the beleaguered constitution.

"I think that those who claim to be running Europe, if you run Europe you have to run it properly and use the next two weeks to show both to domestic consumers and those outside the European Union that we are capable of making decisions," he added.

He insisted the best way forward would be for member states to strike a deal on the 25-nation's long term budget, which has so far torn deep divisions between them. But although a brief discussion of the budget was officially on the agenda of Tuesday's meeting here, no breakthroughs were expected.

British rebate

Juncker is meeting regularly with EU leaders in hope of brokering an agreement on the EU budget to be inked at the upcoming summit. However, Britain's refusal to budge on its rebate from contributions to the EU budget has so far held up progress, which is likely to stall for some time if a deal is not struck before London takes over the EU's rotating six-month presidency in July.

Despite the budget impasse, the ministers had a bevy of topics on the table -- ranging from Dutch finances to savings tax and development aid financing -- to keep them busy and give the air of business as usual amid the signs of crisis.

So far, the economic toll of the constitution fiasco has been directed on the euro, after two Italian ministers suggested that Italy would better off with out it. Last week Italian Social Affairs Minister Roberto Maroni -- a member of the euroskeptic Northern League -- suggested Italy should reintroduce the lira.

That assertion was backed Monday by Italian Reform Minister Roberto Calderoli -- also a Northern League member -- who suggested Rome could return to the lira, or even create a new currency pegged to the US dollar.

Defending the euro

Such comments have put euro-zone officials on the defensive with counter attacks insisting that the single European currency is one of the most successful projects of EU integration ever under taken.

"It's a huge success, we all must see the progress we made (with the euro), the positive effects that we're having in terms of as far as lower interest rates, as far as lower inflation, as far as the increase in growth is concerned," Austrian Finance Minister Karl-Heinz Grasser said.

But some economists believe that the political crisis, which is unlikely to be solved quickly, will continue to weigh on the euro for some time.

"Political uncertainty, economic stagnation and growing skepticism about the potential for ECB (European Central Bank) rate hikes until next year are leading to broad-based euro weakness, and we find little to reverse that trend in the near future," said Bank of America analyst Robert Sinche, forecasting the euro will fall to 1.19 dollars by year-end.