THE EURO’s losses after France’s rejection of the EU constitution gathered pace yesterday as the French vote fuelled concerns that future economic reforms in the eurozone will be hampered.

Uncertainty over the impact of the verdict by French voters combined with concern over the future pace of reform in Europe to fuel a sell-off of the single currency.

The dollar was pushed to its highest levels in seven months as the euro fell by as much as a per cent, to levels as low as $1.2312, before paring its losses a little. Sterling also gained more than a per cent against the euro to close at a four-week high of 67.65p.

The selling pressure on the euro came as Moody’s, the credit rating agency, warned of the long-term consequences of the French vote for the eurozone economy.

Although Moody’s concluded that “European unity is unlikely to be derailed as a result”, and saw few direct implications for the credit status of eurozone member states, it said there would be damaging fallout nonetheless. “The dynamics of integration and enlargement will be hampered and the functioning of European institutions will become increasingly ineffective,” it said.

The rating agency also voiced concern over potential friction between national governments’ policies and the pan-European strategies pursued by Brussels. “There is an increased risk that national policies will prove inconsistent with European framework as currently agreed — as regards both competition policy and macroeconomic policies.”

Pierre Cailleteau, Moody’s senior vice-president, said the weekend’s vote was likely to make economic reforms in the EU “more difficult to implement and may thus result in a missed opportunity to increase wealth per capita”.

Moody’s also predicted that: “Policies perceived as furthering a liberal pro-market stance will be met with increasing hostility from the public.”

Worries that eurozone leaders will find it harder to press ahead with unpopular economic reforms were reinforced by the appointment of Dominique de Villepin as the new French Prime Minister.

Financial market analysts predicted that M de Villepin was likely to push tough reforms off the agenda as he attempted to woo disenchanted voters. “Villepin is unlikely to rock the boat and his appointment is seen as a reflection of an anti-reform stance,” said Dominique Barbet, senior economist at BNP Paribas in Paris.

Anxieties over the economic outlook in the eurozone and pressure on the European Central Bank to cut interest rates grew, meanwhile, as economic confidence in the 12-nation bloc suffered a further decline and unemployment in Germany and France remained high.

As the ECB prepared for its latest interest rates decision tomorrow, the European Commission poll of sentiment among eurozone consumers and companies showed both were becoming more pessimistic. The headline gauge of confidence fell for a fourth month in a row to 96.1 in May.

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