Euro flounders as Lisbon plan falters

THE euro dangled precariously above Monday's six-month lows as the European Central Bank's chief economist warned the currency would recover only if progress was made on economic reform and the eurozone economy picked up.

Otmar Issing, insisting the single currency is undervalued, said: 'The exchange rate of the euro will reflect progress in the implementation of the Lisbon agenda and improvement of growth potential.'

In March 2000, European Union leaders agreed in Lisbon a sweeping agenda of economic and social reforms aimed at creating at least 20m jobs within a decade and lifting the EU's average annual growth rate to 3%.

The leaders made two dozen specific commitments to adapt their companies to the internet age, encourage the foundation of small companies, make finance for enterprise readily available and complete the opening up of the EU's single market. Critics say little progress has been made, and reform is now being hampered by sluggish growth.

Issing said growth in the eurozone had been close to zero since last summer and would not be much stronger during the current quarter.

'Now the first signs of reactivation are appearing, but we still have to see how strong it will be,' he added.

Growing pessimism about the speed and strength of reform and growth yesterday drove the euro to 85.67 cents against the dollar. Today, it was trading at 86.25 cents, or 61.22p against sterling.

During the interview with a Spanish newspaper, Issing also said European Central Bank president Wim Duisenberg would stay at the helm throughout 2002. France claims the Dutchman had agreed to step down in May for a French candidate.