The corridors of power …

The corridors of power ...

Euro notes and coins have been in circulation for six months now and it all seems to be going rather smoothly. There were those who said that the actual circulation of the currency would boost the value of the euro on the foreign exchanges and its value is certainly rising. But to be honest the euro's revival is much more to do with the weakness of the dollar.

Enron, Xerox and now WorldCom have created a crisis of confidence in America’s economy because no one is really sure whether they can trust the accounts of US companies.

The shine has gone off hi-tech and ordinary businesses alike.

It was the scale of profits and all the talk of an economic miracle in America that kept funds flowing into the country, funds the USA needs because it is running a huge trade deficit.

If foreign investors aren’t willing to offset all those imports by buying American bonds, shares and companies then the whole economy has a very serious problem. Luckily for all of us there is a natural balancing mechanism in international economics and that is the exchange rate.

The crisis in confidence means that fewer people are investing in America and that has meant that the dollar is not in so much demand and its value has therefore started to fall.

Europe and the euro on the other hand are seen as a relative safe haven of tougher regulation and relatively consistent growth.

As a result the euro has recovered some 20% of its value against the US dollar and is now approaching parity.

It still has a long way to go to recover its level of a few years ago but it seems accounting standards are far more important and influential than most people seem to have realised.

  • Jonty Bloom is a business news reporter at the BBC.
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