This week will be an important one for the euro and for those charged with its management in the European Central Bank. Last Friday, clearly disturbed by the continued decline of the currency, Mr Wim Duisenberg, the ECB president, issued an unprecedented statement to the "citizens of Europe", in which he said he understood the widespread concerns about the sharp fall in the currency's value. The future of the euro, he said, was as a strong currency based on price stability and economic strength in its member economies.
In the course of the statement he noted that "we at the ECB monitor the euro exchange rate very closely". On the face of it this could be read as a statement of the obvious; after all, it is the job of the ECB to manage the euro. However among traders on the international foreign exchange markets this reference was taken to mean that the ECB would be prepared to intervene in the markets and buy euros to try to prop up the currency's value. Given that Mr Duisenberg's comment came in a written statement - as opposed to an off-the-cuff remark - we must presume that this was the impression which the ECB president intended to convey.
Following the publication of the statement, the euro rose slightly on international currency markets, briefly breaking above 90 cents to the dollar, before closing slightly below this level. Today the currency's fortunes will almost certainly be discussed by EU finance ministers in Brussels - whether formally or informally - and also by a separate meeting of international central bankers in Basle, which Mr Duisenberg will attend. Whether either of these meetings will lead to any further action remains to be seen. The danger for Mr Duisenberg is that he has now "upped the ante" to some extent. His statement on Friday - and comments from the French prime minister, Mr Lionel Jospin, calling for intervention by the main central banks - have left many in the markets expecting some policy initiative from either the EU finance ministers meeting or the central bankers gathering. If nothing is forthcoming, then a further wave of selling could hit the currency.
However propping up a currency on the markets is no easy task. The former British prime minister, Mrs Margaret Thatcher once noted that "you cannot buck the markets" and the experience of the 1992/93 currency crisis illustrated that intervening in currency markets can be a futile exercise. That said, if the ECB can persuade the other main international central banks - and particularly the US Federal Reserve Board - to support such intervention and if it can be well timed, then it might go some way to supporting the currency. The difficulty is that the Federal Reserve Board may be slow to agree and even if it does, timing intervention precisely in the market is a tricky task.
It is a difficult time for the ECB and for euro zone governments. If there is to be an active policy to support the currency, then it must be well thought out and planned and not a hasty and panicked exercise. Beyond that, EU governments can do much to support the currency in the longer term by concentrating on economic reforms.