Despite Irish Vote, the Euro Remains Strong

Ireland’s rejection of the Lisbon Treaty has plunged Europe into a familiar bout of hand-wringing about the future of its grand experiment in political and economic integration.

But the angst has not spilled into the currency markets, where the euro — perhaps the most tangible symbol of European unity — rose against the dollar Monday, the first full day of trading since the results of the Irish vote were announced.

That is a marked change from three years ago, when the rejection of a proposed European constitution by France and the Netherlands deeply rattled the euro. At that time, some experts questioned whether the currency could survive without a more unified Europe.

Few people are saying that today, a testimony not only to the resilience of the euro but also to a widening belief that the European monetary union can function without an accompanying political union.

"Any poll in Ireland would show massive support for the euro, but not for political integration," said Philip R. Lane, professor of international macroeconomics at Trinity College in Dublin. "The question is, do you need political integration for a functioning monetary union?"

The answer, for the most part, is no, said Professor Lane, adding that "monetary policy is essentially a technical exercise, when delegated to an independent central bank."

As a practical matter, the Lisbon Treaty would have little effect on the monetary union. It is mainly intended to streamline the European Union’s balky bureaucracy, though it would also install a full-time president and more powerful foreign-policy chief.

One area where the treaty impinges on economics is in formalizing the role of the Euro Group, finance ministers from countries that use the euro. But these ministers meet anyway; the group’s president, Prime Minister Jean-Claude Juncker of Luxembourg, suggested that countries still keen on political union could form a "Club of the Few."

Certainly, political stalemate has not tarnished the euro so far. Since the rejection of the constitution by France and the Netherlands in 2005, the currency has risen 23 percent against the dollar, becoming an attractive alternative for bond traders and central bankers.

Europe’s leaders, in celebrating the 10th anniversary of the monetary union this month, glossed over the fact that the euro had done little to hasten political integration in Europe — never mind that its founders once viewed that as one of the collateral benefits of a common currency.

These days, the euro’s stewards at the European Central Bank are more worried about soaring oil prices, which is fueling inflation and sowing unrest among truckers and fishermen from Spain to Scotland.

If anything, after six years of appreciation against the dollar, the euro has grown too strong for many here, not least exporters of French wine, German luxury cars and Italian shoes.

"Most people in euroland would be happy to see the euro go down by 5 percent or 10 percent," said Daniel Gros, the director of the Center for European Policy Studies in Brussels.

Mr. Gros said Ireland’s rejection of the Lisbon Treaty would have less of an effect on the currency than the French and Dutch votes because they symbolized a more sweeping repudiation of free-market policies. "The French were saying, ‘we need more protection, give us more protection,’ " he said.

The Irish vote, Mr. Gros said, was primarily a reaction to the treaty itself, a dense 277-page document with little seeming relevance to ordinary people. At a time when the Irish real estate market is collapsing, it was easy for opponents to exploit the fears of an anxious electorate.

Professor Lane said many Irish people worry about immigration, which increases competition for scarce jobs. They also believe that Brussels is seeking to usurp Dublin’s power in levying taxes.

Ireland is the only country to put the Lisbon Treaty to a referendum, as its law requires. The other 26 countries in the European Union are considering it through their legislatures and executives, and 18 have approved it so far.

The charter must be ratified by all 27 European Union member states before it can take effect as planned on Jan. 1, 2009.

Ireland may end up as the big loser from the vote, according to experts. Politically isolated from the rest of Europe, it will have to cope with its housing problems, at a time when the European Central Bank is likely to raise, not lower, interest rates, as it tries to control inflation.

With the German and French economies still resilient, Ireland is likely to find little sympathy on the Continent. But these deepening differences within Europe could still pose a long-term threat to the euro, said Paul De Grauwe, a Belgian specialist on the currency.

"In the very long run, a monetary union must be embedded in a political union," said Mr. De Grauwe, a professor of economics at the Catholic University of Leuven. "Sometimes there are shocks that are so strong that without a close political union, it can lead to a breakup."