Rapid rise of euro is 'risk' for eurozone
By Tony Major and Andreas Krosta in Frankfurt
Published: December 17 2003 21:46 | Last Updated: December 17 2003 21:46
(Jay, The European Central bankers don't read the BBR Thread. They are the only ones -aparently- that didn;t see that the dollar would sink, the Asian currencies wold hold and the Eurpo would take the brunt of the USD fall.
Time for them to subscribe to SI <VBG>)
A member of the governing council of the European Central Bank has warned that a "too rapid strengthening" of the euro could threaten the fragile recovery under way in the eurozone.
Nout Wellink, the president of the Dutch central bank, said the single currency's appreciation - the euro surged on Wednesday to an all-time high against the dollar - was "one of the risk factors" for the European economy. He warned that a "sudden movement" in foreign exchange markets could dent eurozone growth prospects.
In an interview with the Financial Times and FT Deutschland, Mr Wellink said the ECB wanted to see a "smooth appreciation" of the euro, "one that does not disturb the economic process." He added: " What I do not like to see are sudden movements."
Mr Wellink said the rising euro was not in itself the main threat to the eurozone's growth prospects. "The main threat is that it [euro appreciation] goes too fast for economic agents [companies, governments and unions] . . . to react in an adequate way."
ECB officials have tended to play down the strengthening of the euro, preaching the benefits of a strong currency and insisting it is not far removed from its long-term average value, a point reiterated yesterday by Otmar Issing, the bank's chief economist.
He told Bloomberg News that the euro "is essentially back where it started." As a result ECB officials claim the euro's rise should not have major consequences on European company competitiveness. They also say the effects of euro appreciation are being offset by strong global growth.
However economists believe the ECB is concerned about the risks of a stronger euro and are braced for further appreciation. The huge US current account deficit is unsustainable and is expected to lead to persistent dollar weakness as global imbalances adjust.
The Bundesbank, Germany's central bank, warned this week in its monthly report that the US current account deficit posed a substantial risk of sudden currency movements which could dent growth prospects in the eurozone's biggest economy.
Companies in export sensitive sectors, such as cars and chemicals, have started to sound alarm bells over the rise of the euro. The German industry federation said this week that the exchange rate was already above most companies' "pain threshold".
The euro has risen more than 16 per cent against the dollar this year, hitting a record level on Wednesday of $1.2388. If it continued to rise at this pace it could reach $1.40 by the end of next year, roughly 8 per cent up in trade weighted terms if Asian currencies remain stable.
Economists estimate that such a rise could knock roughly half a percentage point off eurozone GDP growth which is expected to reach just 1.6 per cent next year before accelerating to 2.4 per cent in 2005.
Mr Wellink said he was in favour of a strong currency. "It puts pressure on business to restructure . . . to remain competitive. Basically as the end of the day it results in a strong export sector and stable inflation rates."
He said the eurozone economy would need to accelerate quickly next year, if gross domestic product was to expand as forecast. |
