Even at the higher level the euro has lost 16 percent of its value since its debut 13 months ago. Eleven European governments began using the euro on January 1, 1999, in the hope it would provide a stronger alternative to their national currencies, which included the German mark and the French franc.
The relative weakness of the European capitalists against their rivals in the United States lies behind the euro's decline. Many European capitalists prefer to invest in the United States rather than Europe. Through the 1980s and 1990s the U.S. rulers set up a long-running economic boom by attacking social welfare and other elements of the social wage, and by forcing workers and small farmers to labor longer and faster. Their European rivals are further behind in this kind of "structural reform" according to Wim Duisenberg, president of the European Central Bank.
Duisenberg and his colleagues stood aside for months as the euro declined in value. The currency's depreciation lowered the dollar prices of exports from Europe, helping to spark an export-led spurt in growth. Despite this recovery, unemployment in Germany rose to 11 percent in January. In the eastern part of the country the rate stands at 19.1 percent.
Duisenberg cited fear of inflation as the reason for the European Central Bank's action. "With oil at $30 a barrel, and the German engineering union IG Metall demanding a 5.5 percent pay rise, the fall of the euro is creating an inflationary threat which can no longer be ignored in Germany," reported the Financial Times on January 31.
The European bankers hope that raising interest rates will dampen the demand for money by making loans more expensive, thereby acting against any inflationary pressures building up. They also want to shore up the euro and attract investors by increasing the returns on bonds denominated in the currency.
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