The fate of the euro is again under discussion. We discussed here the report for Morgan Stanley by Joachim Fels which gave three reasons for uncertainty. One was the rising protectionist sentiment, a second was the likely rejection of the EU constitution, and the third was bigger fiscal deficits as the stability and growth pact ceased to be effective.

Now David Smith reports in the Times that European ministers will be unable to prevent further weakness in the euro following political instability.

Speculation about a euro break-up intensified when an Italian government minister mused publicly about the return of the lira, and Stern, the German news magazine, reported that Hans Eichel, the German finance minister, and Axel Weber, the Bundesbank president, had discussed the break-up of monetary union with independent economists...

A report last week from Charles Stanley Sutherlands, the stockbroker, put a 50% probability on at least one country leaving the euro by 2008, and said that its complete collapse by 2020 was "inevitable".

One of the biggest threats to the euro is the inability or unwillingness of some of its leading players to undertake the reforms needed to restore growth, jobs and prosperity. Without those changes the eurozone countries will continue to trail the growth leaders in Asia, the US, and non-euro members of the EU. It will be associated with poor economic performance, and its credibility will be eroded.

One very strong fact supports it, however. The political commitment to it was so strong that its abandonment would be seen as abject surrender, as well as the abandonment of an ideal. Nobody wants to be seen to be that wrong. This is about politics, not economics.