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Troubled euro stokes talk of lira's return

FRANKFURT, Germany - The euro fell against the U.S. dollar Friday amid news the American economy created fewer jobs than expected in May and suggestions from Italy's labor minister that a referendum be held on bringing back the lira.

The notion of returning to old national currencies was quickly rejected by Germany, the European Union's biggest economy, and by the EU.

"The euro has proved itself and that's why it isn't an option," said Bela Anda, spokesman for Chancellor Gerhard Schroeder.

"The euro is here to stay," said European Commission spokeswoman Amelia Torres.

The 12-nation currency bought $1.2217 in late European trading, down from $1.2273 late Thursday in New York.

The British pound fell to $1.8123 from $1.8155, while the dollar slipped to 107.82 Japanese yen from 108.25 yen. The dollar rose to 1.2549 Swiss francs from 1.2514, and rose to 1.2514 Canadian dollars from 1.2483.

Several investment banks revised their forecasts for the euro in the wake of its recent drop against the dollar. Goldman Sachs lowered its three-month outlook from $1.35 to $1.20, while its six-month outlook is at $1.25 versus its previous estimate of $1.35. Other banks made similar moves.

Italian Labor Minister Robert Maroni said in an interview published Friday by La Repubblica that his idea of a referendum on the lira wasn't far-fetched.

"Wouldn't it be better perhaps to return, temporarily, at least to a system of double circulation" of the euro and the lira, Maroni asked.

But Carsten Fritsch, a currency strategist at Commerzbank AG in Frankfurt, dismissed the idea, noting that Maroni, the leader of the euro opposing Northern League party, was appealing to his base of small- and medium-sized business owners.

"He doesn't speak for the Italian government, only for himself and his party," Fritsch said. "I wouldn't be surprised if more people use the euro as a scapegoat for their problems."

Italy is in recession and some have blamed the common currency for its economic woes.

The European Central Bank decided Thursday to leave its main interest rate at 2 percent, its level for the past two years, and suggested that sluggish consumer spending, not current borrowing costs, is dragging on economic growth in the zone.

The 12-nation euro has been robust against the dollar, rising to a record $1.3667 at the end of last year.

But concern over the EU constitution, along with a slowing euro-zone economy have weakened the euro. Dutch voters overwhelmingly rejected the treaty, in what could be a knockout blow for the charter after a French referendum gave it a "no" vote on Sunday.

German Finance Ministry spokesman Stefan Giffeler said the German government believed that the euro's recent movement "to a great extent was an overreaction of the markets to the referendums."

ECB chief economist Otmar Issing, meanwhile, said the European Monetary Union would survive any political fallout by the rejections.

"Monetary union can function without a full-fledged political union," he said Friday, echoing remarks by Deutsche Bundesbank president Axel Weber that the financial integration would continue.

"Maybe the speed has changed," Weber said at a conference organized by the Berlin-based DIW research institute, the U.S. Federal Reserve Bank of Philadelphia and the Journal of Financial Intermediation.

[Last modified June 4, 2005, 06:14:28]