A nod is as good as a bit of a rethink

It's natural that the focus these days on the currency front remains on the US dollar, beset as it is by the cyclical weight of low interest rates, the chronic structural condition of balance of payments deficits, and now an apparently deep malaise afflicting the entire financial system.

Dollar demise has been around for a while, and the surge of Asia has in some ways become the bigger story, trumped now though by the financial fallout dominating headlines in Western markets, and the world food and fuel inflation, which is taking its toll in all directions, Asia included.

Europe, by comparison, slips under the radar, preoccupied as usual by introspection. Yet, looking aside of the multilateral maelstrom, the euro has put in a remarkable performance.

Anniversary

As it approaches its 10th anniversary, near the extraordinary level of $1.60, remember the underlying precept: a currency conceived by a group of nations melding themselves into a political entity that is not a country, although trying to be a superstate. Convincing like the Soviet Union, but without the military shield.

Many, myself among them, expected it would suffer from implementing its fixed exchange grid, without complementary fiscal union (though presumed to be planned), thus standardising the interest rate across the board: obviously too low for some countries, too high for others.

When the apparatchiks tried to fix a single timezone across the whole continent, we felt confident that the mindset of madness would sooner or later induce fractures in the currency project: political ambition overriding economic reason.

Yet here we are in 2008, and the EU's central bank has even been able to put interest rates up, with much of the world in relative mayhem, and the euro already very strong, at least against other paper currencies.

The European Central Bank has actually kept to a mandate to limit inflation, with a very Germanic, Bundesbank-like demeanour.

Only in recent weeks has Germany too felt the effects of the international credit crunch, and euro zone industrial output collectively slumped.

Meanwhile, the Fed is reduced (even if unavoidably) to trying to offset the years of excessively low interest rates and high liquidity - which provoked the overexuberance (notably in housing) and dollar weakness of recent years - by way of... low interest rates and higher liquidity. Risk lies all around now.

So, while the Gulf especially keeps watch on the dollar, it's time to say: hats off to the euro. It might be at a localised peak, as the Abu Dhabi Investment Authority is reported to believe, and the world's array of wealth funds may be coveting Asian assets instead, but, it has to be said, the euro's done well.

Life is full of surprises, and the presence of backbone behind the euro is a pleasant one. As for switching from the dollar - that well-worn reserves argument - a bit late now.

- The writer is a freelance journalist.