(Update below 30th May) In a sign of continuing concern over the euro, the single currency has now fallen below 1.25 to the US dollar.
It is sitting at a bid price of 1.2486 just now.
30th May update 09.30: Concerns about Spanish finances are driving the euro steadily downwards. It is now at a bid price against the US dollar of 1.2454.
A London-based foreign exchange strategist at the Royal Bank of Scotland expects the euro to fall to $1.16 before the end of the year.
There is, however, a reasonable argument that a weaker currency could be part of the solution, as opposed to a problem.
It opens up opportunities to build export markets – importantly, outside the eurozone – at the cost of modest internal inflation.
The 11 year old euro has fluctuated widely since it began in 1999 at around $1.179. It traded as low as $0.825 in October 2000 and then rose to a high of $1.599 in July 2008.
It has lost about 16% of its value against the dollar since its $1.44 at the start of 2010.
There is a respectable argument that the real problem is less concern abut the value of the currency itself than with the economies of some member states. This is, of course, the real problem because it demonstrates the underlying instability of fiscal management in the eurozone.
The big test will be whether or not fiscal union will be agreed and will hold, with the loss of sovereignty it entails.
The Republic of Ireland is virtually certain to vote strongly to join a fiscal union. The political cost of this is much less because Ireland has, from the outset, been a committed and engaged member of the EC/EEC/EU and its attitudes are famously pragmatic.
The UK, partly because of the early repetitions of ‘Non’ from France’s Charles de Gaulle on the question of British membership and partly from an unwillingness to cede its historical international weight, has remained at arms length and outside the eurozone.
If the EU moves, as it may do, to ruling that all EU members must also be members of the eurozone, there will either have to be a pragmatic dispensation on historical grounds to allow the UK to continue in its present half-in-half-out mode or it will leave. It is inconceivable that any administration in power at Westminster could now take the UK into the eurozone.
A newly independent Scotland would have a different problem.
The Republic of Ireland has been established as an independent nation for long enough to be free to be pragmatic about fiscal union without feeling unduly troubled about loss of sovereignty.
A country that might just have sold an independence prospectus to its people could not hope to cede that independence before it had even tried its wings. This scenario would simply be one of expensively trading one dependancy for a different one, with all of the seduction of far off fields.
The choice for Scotland would be retention of the GBP or a separate new currency. The economic climate would be unreceptive to the latter; and the former underlines the case for a powerful federalism rather than separation.
