THE POLITICS OF PARITY

As the euro flirts with parity with the US dollar, Europe's policymakers are falling over themselves to issue reassuring statements that the fall in the euro is nothing to worry about. Economically speaking, they are right. But the euro's plunge poses serious questions about confidence in the single currency. Unlike the strength of the yen - which threatens to choke off Japan's economic recovery - the fall of the euro is of little economic importance. With inflation across the euro-zone running at just 1.4 per cent, the price implications of the depreciation are no cause for concern. The risk of a damaging rout in the currency has also been overplayed. Prospects for growth over the next few years within the euro-zone are good. Although a fall through parity may trigger some automatic sell orders, there will be plenty of investors keen to pick up the currency at a low level, in anticipation of a growth-related bounce-back.