German data proves a trigger for euro as much as peace pact

The Kosovo peace agreement had a dramatic effect on the euro. After sliding for weeks towards parity with the US dollar, and reaching a low of US$1.026 as it became clear the original deal over the previous weekend had begun to fall apart, the unit surged to more than $1.05 as the pullout agreement was clinched later in the week.

Yet, the most dramatic rise came midweek, not on news of diplomatic breakthroughs, but in response to better than expected German economic figures.

The war in Yugoslavia is regularly cited as one of the reasons for the European currency's decline. So the end of the fighting, the promise of greater stability in the Balkans and the hope that some refugees at least would return home before winter, was bound to give it a boost.

In the longer term, however, the agreement in Kosovo will have only minor impact on the currency's fortunes. The fighting was costly - at an estimated 4.5 billion euros (about HK$36.58 billion), far more than originally expected. But the cost of rebuilding, which will fall mainly to the Europeans, is expected to be much more of a burden on the economy. The European Commission estimates the cost of a 'Marshall Plan' for the Balkans at about 15 billion euros.

The destruction of Serbia's infrastructure will place a heavy burden on the road and river transport of its neighbours, including eurozone member Austria, and Greece, which hopes to join the euro in two years.

However, the euro does not stand or fall on events in what to the international currency markets is a remote corner of southern Europe. What counts is the performance of the key eurozone economies and European Central Bank (ECB) monetary policy management.