It was also the turmoil on the world currency markets that had emerged following the collapse of fixed exchange rates, the system known as Bretton Woods.

European leaders wanted to create an island of stability so that their countries' economies would not be battered again by wild fluctuations in the value of their currencies.

But the euro has been launched during a period of instability, which began with the massive devaluations of Asian currencies.

Weak or strong?

Some critics of the euro say it will be caught in the turmoil on the international financial markets and also join in the rout.

Stephen Bell of Deutsche Bank has surveyed the opinion of leading investors on the euro

Others fear the reverse - that the euro will be a fortified island of stability as the European Central Bank (ECB) keeps interest rates high - but so high as to make the euro too strong, undermining Europe's recovery by hurting its exports.

With both the US and Japanese economies under pressure, it looks like the latter scenario is more likely in the short-term.

The euro-zone will inherit a large trade surplus (amounting to $40bn in the first half of 1998), a growing economy with low inflation, and substantial currency reserves.

The fact that the European Central Banks was able to cut interest rates in December last year without affecting the exchange rate against the dollar was a strong signal that the euro will be at least initially a strong currency.

That would help to build up the credibility of the new central bank which believes that at some point the financial markets will try and test its resolve.

A new reserve currency?

One hope of the framers of the euro was that it would become a new reserve currency to rival the US dollar.

That would mean that other countries would want to trade in euros rather than dollars.

Currently the dollar dominates international trade, with many commodities like oil paid for in dollars. It also dominates the foreign exchange markets, where the dollar is involved in 90% of all trades.

There are many advantages to being the reserve currency. For one thing, countries are less affected by inflation because most imported goods are priced in their own currency.

Secondly, running a currency deficit is easier because other countries are forced to hold your currency.

But establishing a reserve currency requires years of patience in order to build the trust necessary by counterparties to abandon their tried and true dollars.

And that could require more years of tough decisions by the ECB which could inhibit European economic growth.

Managed exchange rates?

A more radical approach, which is now advocated by the new German Finance Minister Oscar Lafontaine, is to extend the principles of stable exchange rates to the rest of the world's currencies.

He favours a "target exchange rate" regime which would fix a broad relationship between the main currencies - the dollar, the yen, and the euro.

Adopting that arrangement could help the euro become a reserve currency more quickly.

Central banks would endeavour to keep the currencies within some percentage of that figure - although it could be renegotiated if the markets made it clear that there was a massive misalignment.

Such arrangements have operated for limited periods even after the system of fixed exchange-rates collapsed in the early 1970s.

For example, when the international community agreed that the dollar had become too strong in the mid-1980s, all the world's central banks worked together to help bring it down. And they then helped to stabilise it at a new target level a few years later. These were the Plaza and Louvre accords.

But these agreements tend to break down when the interests of the big economies no longer coincide.

That is more likely to be the case now, when the world is heading towards recession. Most countries would prefer their currency to be weaker, in order to boost their exports.

Who will run the euro?

The management of the international role of the euro was left deliberately ambiguous in the Maastricht Treaty which established the single currency.

According to Article 109, it is the Council of Ministers, i.e. the governments, who decide on exchange rate policy after consulting the European Central Bank (ECB).

The council also has the right to negotiate international agreements.

It is true that the politicians signing the treaty were mainly thinking of the relationship between the countries adopting the euro and those who do not.

But that has turned out to be not so much of a problem, because only four countries have stayed 'outside',of which only Britain has a currency which is traded on a significant scale.

But there could be conflicts between the external and internal policy objectives of the euro.

Fighting inflation by keeping interest rates high might need to be balanced against providing liquidity for the world financial system, if the euro was truly an international currency.

It is not clear that the cumbersome decision making processes of the EU could provide the quick resolution that the global financial markets would require.