Euro Appears to Be Unscathed by Flap Over Bank’s Leadership

It was a difficult birth, and the parents bickered in the delivery room for 12 long, tense hours. But in the first working days since Europe’s single currency was given the formal go-ahead, bankers and business people have generally been voicing their contentment with the new arrival.

“The weakening of the dollar over the past few days, and the resilience of European bond markets, show the vast majority of market participants don’t believe the clumsy compromise about leadership of the European Central Bank affects the status of the euro,” said Riccardo Barbieri, senior economist at London-based investment bank Morgan Stanley, Dean Witter & Co.

“The exchanges have understood that what happened was a bit of burlesque theater and that it won’t alter anything about the general evolution of things,” agreed Michel Fleuriet, president of Merrill Lynch France in Paris.

Following a discordant weekend summit by the European Union giving the green light for a new currency that will be valid in most of Europe, the French franc rose to its highest level against the dollar since December (5.93 to the dollar). The German mark, backbone of the future euro, also strengthened in relation to the greenback and reached 1.76 to the dollar Thursday in New York trading.

“The market recognizes more and more that European economies are recovering and that the euro will be a strong currency,” Paul Meggyesi, a strategist at Deutsche Morgan Grenfell in London, told the Agence France-Presse news agency Tuesday.

“Now that all the decisions on the euro have been taken and the new currency practically exists, investors are inclined to associate the mark and the euro, and there is no reason for the single currency to be weaker than the German currency,” he said.

By voting with their money, businesses and investors were shrugging off the acrimonious quarrel that pitted France against its European partners at the Brussels summit, a skirmish that diverted attention from the epoch-making decision to create a currency that will be legal tender in 11 of the EU’s 15 member states, starting Jan. 1.

To meet the demand by French President Jacques Chirac that the president of the new European Central Bank be French, the candidate supported by the 14 other EU leaders, Wim Duisenberg of the Netherlands, agreed under pressure to step down after serving only half of the eight-year term. He will be succeeded by Jean-Claude Trichet, governor of the Banque de France, who will serve eight years.

To some incensed newspaper commentators and politicians, the deal compromised the Frankfurt, Germany-based Central Bank’s independence even before its scheduled start of operations July 1. The fury has been particularly sharp in Germany, where some observers believe it could scuttle the reelection hopes of Chancellor Helmut Kohl.

“Chancellor Kohl emerges beaten from the battle of the euro,” the center-left daily Suddeutsche Zeitung of Munich declared. Corriere della Sera, a liberal daily published in Milan, Italy’s business hub, complained that “the day that should have been triumphal for Europe became a day of shame.”

Hans Tietmayer, president of the German Bundesbank, who had lobbied for a full eight-year term for Duisenberg, complained that not enough had been accomplished by the Brussels summit to guarantee a “transnational and depoliticized” euro. But even business circles in Germany didn’t appear overly concerned that the new European bank might not follow the same strict monetarist policies as Tietmayer’s Bundesbank.

“We trade six months in advance according to economic trends. And these are positive,” said Michael Hanemann, a stock market trader at Commerzbank in Frankfurt. “The euro will come, no matter whether the president of the European Central Bank resigns in four years or not.”

Analysts said the markets were also reassured by the appointment of Otmar Issing, the Bundesbank’s chief economist, for an eight-year term on the executive board of the new European bank, which, like the Federal Reserve in the U.S., will set interest rates in the euro zone.

The other board members are Christian Noyer, a senior French Treasury official who was named vice president of the bank; Tommaso Padoa Schioppa of Italy; Eugenio Domingo Solans of Spain; and Sirkka Hamalainen of Finland.

But political fallout from the European Central Bank compromise seems fated to continue for some time. In both Duisenberg’s native Netherlands, where there was a general election Wednesday, and Germany, officials hinted that Duisenberg might not resign, as now expected, in 2002 after euro bank notes and coins go into circulation.

Times bureau assistants Sarah White in Paris and Petra Falkenberg in Berlin contributed to this report.