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Last Updated: Wednesday, 1 June, 2005, 16:17 GMT 17:17 UK
Euro report whips up German storm
German Finance Minister Hans Eichel (right) and Bundesbank President Axel Weber
Germany's finance minister has presided over a struggling economy
A political storm has broken out in Germany over reports that the government may be distancing itself from the European single currency.

Stern magazine said that Finance Minister Hans Eichel had been present at a meeting where the "collapse" of monetary union was discussed.

The government is planning to blame the euro for Germany's economic weakness, the magazine added.

The report was dismissed by both the ministry and Germany's central bank.

But it comes at a sensitive time for Germany, as the country gears up for a possible early general election following regional poll defeats for Chancellor Gerhard Schroeder's ruling Social Democrats (SPD).

The euro dipped sharply when the report came out on Wednesday morning, hitting an eight-month low of $1.2218 by 1600 GMT.

Struggling economy

The mere fact that it has been talked about means that it is a big deal
Jeremy Hodges, Lloyds TSB Financial Markets

Public dissatisfaction with the government's handling of the economy is one of the greatest challenges facing Chancellor Schroeder.

His ruling SPD/Green coalition is widely expected to lose a parliamentary vote of confidence, due to be held by 1 July, which would trigger a general election.

The euro is seen as a potential source of political conflict. According to Stern, some 56% of Germans want to go back to the deutschmark.

And dissatisfaction with the single currency has proved a potent topic in the campaign ahead of this week's Dutch referendum on the European constitution.


Responding to the Stern report, the finance ministry and the Bundesbank described talk of the euro's demise as absurd.

"Finance Minister Eichel and Bundesbank President Weber see the euro as a unique success story and an important step in securing the future of Europe," a Bundesbank spokesman said.

Both men said they had not taken part in discussions during the meeting on the problems facing monetary union.

"The mere fact that it has been talked about means that it is a big deal," said Jeremy Hodges, head of foreign exchange sales at Lloyds TSB Financial Markets.

"I see no reason whatsoever to go against the euro move."

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