Investors Ante Up in Europe, Ignoring New Central Bank Waffling

Investors worldwide ignored the shaky start to Europe’s new single currency and poured their money into European markets Monday.

It was a surprising conclusion to a tumultuous weekend meeting in which the leaders of Europe chose 11 countries to participate in the new money, called the euro, but also waffled over selecting the head of the new European Central Bank.

Because France and Germany were backing rival candidates, the 15 nations of the European Union essentially split the difference. The German candidate, Wim Duisenberg of the Netherlands, will be named for an eight-year term, but will “voluntarily” step down in 2002 to make way for French central bank chief Jean-Claude Trichet.

The compromise, reached early Sunday after 11 hours of bargaining, raised the possibility that the new central bank will be susceptible to political influences. Financial analysts say they believe the new European bank, which will oversee the economies of all 11 euro countries, must establish its independence if it is to achieve economic credibility.

Investor credibility was apparent Monday. The Frankfurt, Germany, stock market DAX index ended the day up more than 4% and the Paris CAC index rose 2.4%. Major European currencies, including the German mark, weakened, but by insignificant amounts.

Analysts said Wall Street’s strong showing Friday influenced traders, but they also said investors had little interest in the EU political gyrations over the central bank chief because the economic foundation of the euro is strong.

The euro becomes a financial instrument on Jan. 1. Bank notes and coins will go into circulation in Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain at the beginning of 2002. Among the other EU members, Britain, Denmark and Sweden chose not to join the euro and Greece did not qualify.