How fast the tide turns. Back in February, a report that the South Korean central bank was planning to keep a bigger share of its foreign currency holdings in euros and a smaller portion in US dollars set off speculation that the euro would soon overtake the dollar as the world?s preferred reserve currency. Five months later, the speculation is about how long the euro will survive.

Late in July, the Italian prime minister, Silvio Berlusconi, blamed the euro for all of Italy?s ills ? recession, high prices, joblessness, the lot. ?Prodi?s euro has ripped us all off,? he said. (Romano Prodi, who defeated Berlusconi in 1996 and brought Italy into the euro, will be the opposition?s candidate for prime minister in next year?s elections.)

Italy?s current economic miseries go back to the time when the euro replaced the lira. Since that was also about the time when Berlusconi took over, it makes good political sense to blame Prodi. Last month, a senior minister in the coalition government, Roberto Maroni of the Northern League, even called for a referendum on pulling Italy out of the euro. But it?s not just Italians who dislike the euro.

Danger signals

French and Dutch ?no? votes on the new European constitution have cast a shadow over the whole European project. Although the referendums were not about the euro, French and Dutch voters listed the new currency as one of their major grievances against Brussels. A recent poll showed that 56 per cent German voters want the mark back. Could the euro really just fall apart?

The euro is not yet five years old. It depends, as all currencies do, on people believing that it will hold its value over the long run. That credibility is now in danger. What makes the euro so vulnerable is the fact that there is no government behind it. There are twelve governments behind it, but they have not submitted themselves irrevocably to a single authority. If a major political or financial crisis hits, there is always the chance that one or more governments will decide the joint currency is no longer in its interest.

The euro is a one-size-fits-all straitjacket that does not serve all the countries that have adopted it equally well. For example, it imposes the same interest rate on Germany (which needs a lower rate to help it escape a long economic downturn) and on Spain (which should raise the rate to cool its inflation). Only a large range of benefits from this single currency would compensate for its obvious costs, and most eurozone citizens don?t see those benefits.

Doom is near

The European Central Bank has day-to-day responsibility for running the currency, but the separate national governments of the EU retain their sovereignty and in a crisis could override the ECB. That means the euro could fall apart in theory. Is it likely to do so in practice?

Not this time around. Italian politicians may play with the idea of bringing the lira back, but it would be ?economic suicide?, as ECB chief economist Otmar Issing put it, for Italy alone to abandon the euro. The real danger for the euro will come much later, perhaps in the next recession but one, around 2015-18. By then 22 countries, including the new entrants, with wildly diverse economies will be using the euro. More importantly, by then other big EU countries besides Italy may also have concluded that the euro does not serve their purposes.

European governments rushed into the euro in the Nineties as an emergency response to the collapse of the Soviet empire and the reunification of Germany. They intended closer political integration to follow, but that project has now stalled. If it is not re-started, then sooner or later, the euro is doomed.