BRUSSELS, Jan 15: With the euro well into its third week as Europe’s common currency, public excitement over the continent’s glittering new euro notes and coins continues unabated.

A record 90 per cent of all cash transactions across the 12 nation eurozone are now in euros, say European Union officials, with eurozone citizens “even in Germany — abandoning their national currencies with little nostalgia”.

“Virtually everyone in Europe now has euro notes and coins in their pockets’ and almost all euro-zone-cash dispensers and vending machines now operate in euros, says European Monetary Affairs Commissioner Pedro Solbes.

What’s more, enthused by the rapid switchover from national currencies to the euro, leaders in non-eurozone Sweden, Denmark and Britain are considering plans to hold difficult referendums on membership of the currency earlier than anticipated.

But good news for the euro’s domestic reception does not mean a stronger global reputation. Euro-watchers are unanimous: a sustainable forex boost for Europe’s new currency requires eurozone leaders to get serious about structural reform.

A euro rally against the dollar also hinges on governments in the 15 nation European Union crafting a clear political vision for Europe.

The euro’s relatively glitch-free launch spotlights Europe’s many economic and political shortcomings, says Nomura economist Adolf Rosenstock.

“What Europe needs and still lacks to become a successful entity has become even more visible,” says Rosenstock.

Markets were impressed only temporarily by eurozone enthusiasm for the euro. The euro hit 90.40 US cents on the back of the smooth conversion in the first week of its life. But it is now back to hovering around the 89 cents mark.

And don’t expect any immediate improvements. “Eurozone economic fundamentals haven’t changed from what they were before euro cash arrived in our pockets,” Rosenstock warns.

Europe’s economy remains sluggish, with growth expected to stand at only one per cent in 2002. Eurozone markets “for financial services, electricity and transport for instance — are fragmented into small national ones and badly-needed labour reforms are still pending.”

“The crucial problem is that Europe still does not have a real single market for goods and services,” cautions Guy Verfaille, European economist at Fortis Bank.

EU policy-makers say they know what is wrong. “We face important decisions on reform and management of our economy in order to reach a higher growth plan,” admits European Commission President Romano Prodi.

“We must continue to liberalize markets and modernize our social welfare systems,” Prodi underlines.

Monetary Commissioner Solbes concedes that the euro’s evolution will depend on “many other factors,” including the speed of Europe’s economic upturn and success in building a more competitive and dynamic European economy.

That is easier said than done, however. Vital national elections in Portugal, Germany, Sweden, the Netherlands and France this year mean that governments will be even more reluctant than in the past to make unpopular restructuring moves.

And as the European economy continues to stagnate, so will the euro remain “under-valued” on global markets, cautions Fortis Bank’s Verfaille.

PARITY: A euro-dollar parity is still expected as the euro’s physical arrival spurs the construction of a single European market. Once this happens, investors who are still pouring money into the more flexible growth-oriented US economy will start finding attractive European alternatives to spend their money on, Verfaille predicts.

But the timing of the euro rally remains uncertain, he says, depending on just when eurozone economies can emerge from the shadows of recession.

Even then, recovery in the US will probably be faster. “The US had an excellent five years before the current recession and the market sentiment is that there will be another cycle of American prosperity,” Rosenstock says.

As a result, he predicts that the euro will continue to fluctuate between 88 and 92 cents “for some time”.

A change in the euro’s fortunes will come, however, when markets start to see the beginning of a European ‘ruling idea’.

BERLUSCONI: Problems with Berlusconi whose centre right government has been unusually critical of the euro and EU policies also look set to spoil the March inauguration of a European conference designed to find a political design for increased EU integration.

Neither is any future eurozone expansion necessarily a good thing, heightening as it will existing economic management difficulties in the currency zone.

Added to that is continuing uncertainty over how long European Central Bank President Wim Duisenberg will stay on in his job.