Outlook: Parity puts everyone in a huff, but does it matter?

ON A DAY when world stockmarkets decided to take their exuberance into new territory, the euro's repeated dips below the $1 level and back again looked like a sideshow. And so they were in one sense. While parity might be an important psychological barrier, it obviously impresses itself more heavily on the political than the market psyche. Quite a little slanging match we had yesterday with Mr Duisenberg blaming Mr Schroder and Mr Schroder lashing out at Mr Brown and Mr Blair, and the Tories gleefully criticising everybody.

So let's examine the facts. Curiously, the weak euro has so far brought nothing but good to the Euroland economy, contrary to the idea put about by British sceptics. It might be embarrassing, but as the component currencies had appreciated so much during 1998, the single currency's decline throughout 1999 has helped boost exports significantly.

Of course, if the exchange rate fell too far, too fast, it would pose some inflationary threat - particularly when oil, priced in dollars, has become more expensive anyway. However, the beauty of monetary union is that it has turned Euroland into a large, relatively closed, economy. The exchange rate would have to stay weak for a long period for it to contribute much by way of inflationary pressure. What's more, apart from oil, the inflation background is extremely benign.

This is why European stockmarkets could join the US and UK in yesterday's surge. On the Continent too there is every prospect now of non-inflationary growth, even if not on the American scale.

However, there is one sense in which the euro-furore does matter. As Wim Duisenberg has pointed out, public confidence in the new currency must be maintained. The one-dollar euro matters a bit in this context. More important, the blame game, if politicians permit it to continue, will undermine popular support for the euro. That, too, might not matter in the short term. But it will if support is waning when the ECB does want to raise interest rates or when the economy hits its next rough patch.

The ECB president is also right - although not necessarily wise - to point the finger at the German government for its reluctance to undertake necessary economic reforms, symbolised by the Holtzmann bailout and the support for Mannesmann against Vodafone. A cyclical upturn in Euroland will need to be underpinned by deeper structural changes for a better long-term growth performance.