THE DOLLAR CRISIS : Currency Free-for-All Puts EU’s Monetary Union on the Ropes : Europe: Surging mark, nations’ failure to meet criteria make the goal more elusive.

It has been dubbed a dollar crisis, but one of the biggest casualties of the recent turmoil on the world’s money markets may be Europe’s trouble-plagued effort to create a single currency.

The dream that the 15 member states of the European Union can achieve a unified currency by the end of the century is still alive amid the wreckage of the past week, but it has clearly suffered another setback.

“The goal of a unified Europe and a single currency is further away now because of all that’s happened,” said Tim Stewart, chief currency strategist at Morgan Stanley in London.

His assessment reflects the mood on trading floors and in government offices throughout the region.

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The heart of Europe’s problem is simple and twofold:

* Almost no currency can keep up with the surging German mark, which is the acknowledged centerpiece of any European monetary union. Together with the Japanese yen, the mark has been the main shelter for investors fleeing the dollar over the past week.

* Political leaders in many countries hoping to be part of a single European currency zone have been either unwilling or unable to implement the unpopular measures needed to meet the tough qualifying standards for such a union.

Only Luxembourg and Germany now meet the criteria for monetary union set down in the 1991 Maastricht Treaty on EU political and economic union, although others, including the Netherlands, Austria, France, Denmark, Belgium and Ireland, are tailoring their policies to do so.

Britain, which could probably qualify, remains politically undecided.

The mark’s sudden burst of strength has exposed the underlying weakness of some European currencies that are candidates for monetary union.

“The latest situation is an example that people are questioning the capacity of governments to make the hard decisions needed to achieve convergence,” said Stewart. “The market is picking off those currencies that seem least likely to make it.”

The result is growing tension within the European Exchange Rate Mechanism that now loosely ties together 10 of the candidate currencies.

After intense speculative pressure last week, the Spanish government was forced to devalue the peseta Sunday, a move that dragged down the Portuguese escudo.

The next day, the French and Belgian francs came under attack briefly as money markets searched for new targets.

Meanwhile, Germany’s low inflation, renewed economic growth and the monetary success of reunification have all helped drive the mark upward.

“Under a German magnifying glass, you can still see many problems for the mark, but from the outside, investors find it as very attractive,” said Ulrich Beckmann, vice president of DB Research, the Frankfurt-based investment research arm of the Deutsche Bank.

Although the mark’s new strength triggered Europe’s latest problems, many see the resulting attacks on the ERM’s weaker currencies as a sign that markets remain skeptical about the prospects of monetary union at all.

“Obviously, a country can ease pressure by getting its debt and deficit ratios moving in the right direction to meet the Maastricht criteria, but not everyone can do this,” said James Lister-Cheese, a currency specialist at Independent Strategy, a London-based firm of financial analysts.

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He cited Italy as an example. Although the lira dropped out of the ERM three years ago, Italy still aspires to be part of a European monetary union.

“Italy’s debt is now 120% of GNP, which is twice the Maastricht qualifying limit, and there is simply no political consensus to institute the vigorous fiscal tightening and the austerity needed to ensure that this ratio starts to fall,” Lister-Cheese said. “Therefore, its financial assets pay the price.”

Europe’s present troubles follow 18 months of carefully nurtured stability within the ERM and a gradual convergence of currencies in the wake of the last monetary crisis in August, 1993. That stability had rekindled hopes for a European monetary union by the end of the century.

Some optimists even argued that a kind of mini currency union involving at least eight nations could take shape within the next two years, but the past week’s events seem to make the prospect highly unlikely.

The implications, if the efforts at a union fail, extend far beyond the realm of fiscal policy, for monetary union now stands as the single most important goal to those pressing for a united Europe. Increasingly, advocates of deeper integration believe political unity can be achieved only after a successful monetary union.

“It is the end-all and be-all of integration,” Lister-Cheese said.