Till the central banks intervened to prop up the Euro, the fate of the currency was on a precarious balance. Although the currency has lost nearly 27 per cent since it was launched in January, 1999 against its major competing currency the US dollar, there have been occasional spurts that raised hopes on the currency's performance, however temporary those were.

Perhaps only a month ago, there were many who thought that the Euro had ended its jinx and would come to its realistic value soon. They said so because the Euro in the previous month and a half had gained substantial strength. There was also the feeling that the US dollar ultimately would yield ground as the prospects of the US economy continuing to grow at the same pace were slowly receding. There were signals aplenty for that. The stock markets were on the slide and there were expectations that the flight of capital from the Euro currency countries would ultimately come to a halt. It was also believed on a larger note of optimism that the Euro zone could reverse the flow of capital into itself. This would strengthen the Euro further.

The Euro that was gaining strength to about $ 0.95-0.96 per Euro, fell to about 0.84-0.85 dollars per Euro. It recovered some lost ground to come to about 0.90 dollars per Euro level with the support of the European banks. The support of the banks is likely to continue as there are serious thinking that unless the currency is brought to its real value, the Euro zone economies will be hit hard. At the same time, the rise in oil prices is also going to hit these economies hard. At lower value of the Euro, the impact will be deeper. However, the course the Euro will take remains unclear leading to increasing speculation and confusion in the business.

The currency has been on a downslide almost since it was launched for reasons the economists found difficult to identify. This has happened at a time when the Euro zone economies as well as the rest of the European Union, have had strong economic growth with low inflation and interest rates. The inflation rate dipped low and remained at about 1.2 per cent last year. Small increase thereafter has brought it close to 2 per cent this year. Now if oil prices remain high and the value of the Euro is not sustained, inflation rate may rise for the rest of the year. But, till the oil price increased, there was no potential threat of inflation rate increasing in the Euro zone countries. The interest rates are also around 2 per cent at present. Yet, the US dollar dominated the global market - quite expectedly also, because, the US economy has also been strong and continues to grow strongly for the last six consecutive years. But, the relative weakness of the Euro vis-à-vis the US dollar, despite similar strength of the Euro zone economies was somewhat puzzling.

For the steel industry globally the Euro is important.

Till recently, the European Union, in particular the Euro zone economies were not so much in the forefront of exports of steel. There were two reasons for it. First, they had a very strong domestic market to take care. With already a couple of anti-dumping and subsidy cases in place as well as a quota imposed on Russia and Ukraine, the EU steel mills in general did not have to try it very hard to sell. Two, the stronger Euro made exports unviable. Therefore, exports outside the Euro zone was limited.

Now that steel production in Europe and in particular the Euro zone countries has sharply gone up, the situation has taken a quick twist to complexity. In the first eight months of this year, January- August, 2000, the EU crude steel production is up 7 per cent. Among the member countries; Germany, Italy and Belgium ,Spain and France saw their crude steel production rising by 12.9, 8.8, 8.0,9.3 and 4.8 per cent respectively. These countries account for 87 per cent of the total crude steel output in the European Union. These are all Euro countries. The fact that these countries are also heavily dependent on the world market, naturally, there is increased pressure to export now as the EU steel appetite seems to have reached a plateau.

Despite the additional protection from a weaker Euro and a host of trade cases against foreign steel, contributing to some extent to the drop in import growth rate in 1999 to 6.1 per cent from about 8.9 per cent in the previous year, the steel industry in the European Union remained constantly under threat of imports increasing as the domestic steel demand remained at historic levels. The domestic prices of steel were high enough to attract imports. However, since the global steel price line was high and the US remained a favourite destination for world's steel, the EU steel makers had enjoyed some of the best times in recent years. The Euro zone steel mills infact took advantage of the weaker Euro to export heavily during the first and the second quarters of 2000. The European mainland market place turned favourable to the Euro zone mills even vis-à-vis the UK based mills like those of Corus.

The weaker Euro also led to expectation of exports in general touching a 8.2 per cent growth rate this year on a forecast of GDP growth rate of 3.4 per cent , as per the estimates of the European Commission.

The steel mills looking at the immediate benefits and survival for the day, the fall in Euro value could not have been at a better time. The world steel prices are again at their pits. A stronger Euro would have led to a flooding of the home market with imported steel. At the same time, it would have been fairly difficult for them to compete in the world market. Since most of the steel exporting countries have undergone a competitive process of depreciation of their currencies, staying aloof from the process may turn dangerous for the Euro zone industries. The steel industry has suffered quite a lot in the United Kingdom due to the strength of the sterling pound.

If the Euro zone steel producing countries turn to the export market, the rest of the world, or at least several countries, will have some headache. Also, exporting to the Euro zone will be increasingly difficult. But, the immediate gains from trade may ultimately turn against the interests of the steel companies in the longer run.

But, a weak Euro would not attract capital for investment into the Euro zone. Not only that, the flight of capital may continue. If investments drop, the steel mills are to lose the most. Their order books will go thinner. This the last thing that the steel mills in the Euro zone would like to see. After all, the home markets are of larger importance for these mills than exports.

But, the interventions of the Euro zone banks, more directly under instructions from G-7, to prop up the currency poses a new question. Is it necessary ?

The intrinsic strength of the Euro notwithstanding, the fact that the global economy is sending signals that it has already left behind the best days and that a recession is round the corner, there is stronger possibilities now of the international market for commodities and manufactured items turning bearish raising strong competition among trading nations. In these circumstances, a weaker Euro will help the zone to retain its share of business. Perhaps, considering the competitive position of the manufacturing sector in many areas at the moment, the current value of the Euro should have been good enough for a tougher competition to face. But, the currencies' value is being determined not by the trade balance of the zone, but by the capital balance. The EU that could not match the IT revolution in the US lagged behind pathetically in the race to draw investments.

The future of the Euro will be determined by the growth pattern of the US economy. There are reports of investment slowing down in the country. Investor confidence is taking a beating as seen in the violent fluctuations in the stock markets. The unexpected results of Intel Corp. have already cast doubts over the prospects of the IT industry. If somehow pessimism gains ground in the IT industry, the US dollar will get hit as much as the US economy.