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Falling euro threatens both sides of Atlantic

Last week's move to bolster the currency indicates the seriousness of the situation.

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The dramatic move by central banks of the major industrialized nations to shore up the falling euro is being driven by complex economic and political calculations - and poses new risks on both sides of the Atlantic.

While many analysts doubt the action taken on Friday will have much effect, the synchronized move by the US and other industrialized nations shows how serious the economic consequences could be if Europe's common currency continues to drop.

In Europe, officials are worried that a weak euro will stimulate inflation as imports become more expensive. The high price of crude oil is compounding the inflation threat.

For the US, major American multinational companies could find their overseas' earnings hit if the euro continues to fall, sending stock prices down. High stock valuations have bolstered consumer purchasing in recent years. A plunge in the stock market, it is feared, may dampen the economy right before the presidential election Nov. 7.

That, at least, is the apparent concern of Vice President Al Gore. Analysts say he was instrumental in getting the US to go along with other central banks Friday in buying up billions of dollars worth of euros in hopes of stabilizing the currency. "[Vice president Al] Gore got frightened," says Washington economic consultant Harald Malmgren.

Earlier this month, the European Central Bank intervened itself in the markets to drive up the euro and sought the help of the US - without success. Any such action was opposed by the Federal Reserve under Chairman Alan Greenspan and Treasury Secretary Lawrence Summers. They welcomed a strong dollar. But the Clinton administration changed its mind last week.

By Friday, the euro had slipped 28 percent against the US dollar since its peak shortly after its creation at the start of 1999. The baby currency was worth only 86 cents just before the coordinated intervention.


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