The euro was much criticised last year, particularly in the UK and the US, for its relative weakness. And indeed the fall through parity with the dollar at one stage and overall 15 per cent decline over the year did not make it easy to convince the public that the new currency was a success.

Of course the euro's weakness did benefit the weakest economies in the euro zone, notably Germany and Italy which look set for very good performances this year as a result. But this was at the expense of considerable public opposition, particularly among Germans, who have been deluging European Central Bank (ECB) executive board members - particularly Mr Hans Tietmeyer and chief economist Mr Otmar Issing - with worried letters.

Indeed, Mr Issing has admitted that his own mother is one of the many thousands of worried elderly Germans who fear the new currency losing the value they believed was the hallmark of the deutschmark.

Partly as a result of this and of political pressure, it is now thought that the ECB will change its position on the euro's value from one of benign neglect to some limited support. Mr Duisenberg is reported by the Frankfurt Money Strategist to have persuaded other executive board members that the value of the currency must now be supported in some way.

A speech by ECB vice-president, Mr Christian Noyer, on December 6th reportedly marked the turning point, where he stressed that the value of the euro was an important factor in maintaining price stability. This is in marked contrast to the previous official view which insisted that in a relatively closed economy, the value of the euro had little or no significance.

The ECB will also be hoping that continued economic growth in Germany will underline the value of the currency. Despite its long-held forecast that inflation will not rise above 2 per cent for two years, the challenge for the ECB will be to allow growth to gather momentum without pumping up interest rates so much that it is choked off.

One important point is that unlike the US where strong growth probably points to a need for higher rates, Europe has huge surplus capacities, particularly in labour markets with unemployment still in double digits. As a result the two economies ought to be able to grow quite quickly - the euro zone at around 3 per cent and the US at around 4 per cent. However, interest rates should have much more of an upward bias in the US.

Another factor which should help the euro this year is a more positive political backdrop. Last year, could hardly have been much worse as the currency lurched form one political problem to the next, from the turmoil caused by Mr Oskar Lafontaine to the resignation of the entire European Commission. This year, however, the political prospects may be brighter.

European Commissioner for financial and monetary affairs Mr Pedro Solbes is shortly embarking on a mission to sell the euro. In Japan and possibly the US he will be seeking to emphasise the message of euro stability.

In addition the government of Mr Gerhard Schroder is beginning to recover in the opinion polls and is now expected to win both regional elections benefiting from the party funding scandal enveloping Mr Helmut Kohl. As it begins to gain in confidence it should have more time to spend on co-ordinating and promoting greater co-operation on the euro's external value between the various governments and supra national organisations - in line with French pressure.

The relationship between French finance minister, Mr Christian Sautter, and his German counterpart, Mr Hans Eichel, will probably be crucial to this debate.

However, there are still problems in Italy and there remains a chance that president, Mr Massimo D'Alema, will step down this month. He is understood to be under pressure to resign by January 13th, the date of the next Democratic Socialist convention.

Nevertheless, a generally more stable political picture coupled with the efforts of the EU Commission may be enough to begin to convince investors from Japan and the US that the euro is a currency worth holding long term. Some have taken the view that it is difficult to have a longterm view on a currency which has no government behind it.

A recovery in the value of the euro would be good news for the Irish economy. While most of our inflation is dictated by world prices there are signs of a pick up in prices as a result of the weakness of the euro. Exporters have benefited considerably over the past year from the currency's weakness but even a 10 per cent appreciation would still leave them with considerable competitive advantage over UK competitors who have been suffering as a result of the strength of sterling.

In addition, if as expected the euro-zone recovery goes ahead and the currency remains stable, most euro-zone equities are likely to prove a good buy. However, Irish stockbrokers may still be in for a difficult year if institutions continue to decrease their weightings in most companies on the Dublin exchange.

jsuiter@irish-times.ie