Europe's fledgling single currency, the euro, tumbled below $1 for the first time ever today, less than a year after it was launched amid fears that it might become so strong that it would hurt the economies of both the United States and Europe.
As the euro breached the psychologically important barrier, concern heightened about its long-term viability. Eleven European nations formed the euro on Jan. 1 in an ambitious effort to create a regional economic and monetary union.
The euro reached parity at 3:47 p.m. EST, slipped as low as 99.97 U.S. cents and then rose just above $1. Its previous all-time low was $1.0039, reached during trading Monday.
The single currency now has plunged 16 percent from its first day of trading, Jan. 4, when it quickly rose to an all-time high of $1.1886.
The euro's decline extended a ragged retreat over worries that European governments lacked the resolve to let free-market forces prevail without intervening to protect national businesses.
Economists and currency traders have said that the euro's slide to parity with the dollar would have little immediate economic impact on the member countries of "Euroland" and their 292 million residents.
"The fact is that it's just hitting a new low," said Peter Gutmann, senior economist at National Westminster Bank Group.
But it does inflict psychological damage.
By crossing such a highly visible threshold, the euro has given a black eye to supporters who had hoped the currency would challenge the dollar's supremacy in global financial markets. That dream now seems a distant memory for those who viewed the euro not just as a bold financial experiment but as a step toward the ultimate political unity of Europe.
On a more practical level, a weaker euro increases the risk of inflation. A weak euro makes imports, including crude oil and other necessities, more expensive for European consumers.
As a result, the European Central Bank might come under more pressure to raise interest rates, a move that could discourage borrowing, throttle Euroland's gathering economic recovery and aggravate chronically high unemployment.
ECB President Wim Duisenberg said today that he wouldn't rule out intervening to support the euro. The European Central Bank could sell its dollar holdings and buy euros, though Duisenberg gave no details about if and when that might happen.
Further erosion in the euro's value could undermine public confidence in it as a hard currency. In the worst case, a debased euro might even lead to calls for member countries to junk it and revert to their individual national currencies.
The euro is used now mostly for accounting purposes. Although it can be traded electronically and used for purchases by credit card or traveler's check, euro notes and coins won't become available until Jan. 1, 2002.