The euro has generated seemingly endless heat and light in the last month but none of it has been translated into net motion. Against the pound and the US dollar it is essentially unchanged from its position on Christmas Day and New Year’s Day. The euro’s range against the dollar has covered four and a half cents during that time and two and a half against sterling.
Investors have proved surprisingly resilient in their support for the euro despite all it has thrown at them. Every time EU finance ministers gather, and following every summit meeting, the euro receives another burst of support. Apparently investors are desperate to believe that this meeting – the fifteenth, the umpteenth, it doesn’t matter – will be the one that delivers the goods. They see not the least irony in the hope that each new agreement will succeed where its predecessors failed. At the moment the market is pinning its optimism for the euro on three developments: the European Central Bank’s provision of unlimited, cheap three-year loans to the region’s banks, the downturn in Italy’s borrowing costs that this helped to provoke and the ongoing negotiations between the banks, the Athens government, the EU and the International Monetary Fund to reschedule Greek government debt.
As long as those carrots dangle before them, investors seem content not to rock the boat. After all, there really might be a rabbit in the Brussels hat and it would be a shame to walk away only to miss its triumphant presentation. Even those who don’t believe in rabbits are reluctant to leave the show; as with Father Christmas, you can never be sure
So the euro totters along, always treading gingerly on the edge but never falling off. Having managed to keep up the act for this long there is no reason to bet it will tumble tomorrow.