Greenspan: 'Little Doubt' Euro Is Sound
Nov 30 4:20pm ET
WASHINGTON (Reuters) - A belief that U.S. productivity, or output per worker, will continue to outstrip Europe's accounts for more robust demand for dollars over euros, Federal Reserve Chairman Alan Greenspan said on Friday.
"Clearly the euro readily meets all the key qualifications for a major international currency. Indeed, there can be little doubt that the euro is a sound currency," Greenspan told the Euro 50 Group, a Brussels-based organization that promotes discussion of European economic policies.
The euro has existed in financial markets for almost three years, but will go into physical circulation next year among the 12 European nations that have entered into monetary union.
In its brief life span, the euro has been consistently weaker than the U.S. dollar in foreign exchange markets, something Greenspan said was due to several factors.
He said the European common currency was hurt by continued wrangling over regulatory and legal differences across borders that has hampered equity trading and securities lending.
"A resolution of these differences would add to the attractiveness and stature of the euro in the international arena," he said.
U.S. TO KEEP OUTPUT EDGE
But he suggested the key factor was a stronger expectation in financial markets for output gains in the United States than elsewhere.
"The steady flow of capital from Europe to the United States in recent years is, presumably, the consequences of Europeans finding many investments in the United States persistently more attractive than those at home," he said.
"The persistent strength of the dollar in the face of the United States' unsustainable current account deficit underscores this impressive propensity to accumulate dollar investments, relative to those denominated in euros," he said.
Greenspan said U.S. firms are more willing to adopt new, productivity-enhancing technology in part because they face fewer restrictions on the hiring and firing of workers than their European counterparts.
Answering questions later, Greenspan expressed some surprise that productivity has advanced even in the face of an economic slowdown that turned into an outright contraction in national output during the third quarter, when gross domestic product shrank at a 1.1 percent annual rate.
PRODUCTIVITY GAINS 'STARTLING'
"The productivity gains that have occurred since the beginning of this year, or more importantly since the rate of growth started to decline in the spring of the year 2000, have really been startling in a certain sense in that they are quite different in their sign as well as their magnitude from what previous models would have implied," the Fed chief said.
He said it was possible the productivity -- regarded as key to generating continued increases in living standards -- will advance again in the current fourth quarter. Most analysts think the economic contraction will be even more severe in the fourth quarter than it was during the third quarter.
"It's too soon in the fourth quarter to make very many judgements, but despite the fact that we clearly have been shocked by the tragedy of September 11, there is no evidence at this stage from the data we have to date that there will be a decline in productivity in the fourth quarter," Greenspan said.
Any productivity advance likely will be "very small" in the fourth quarter if it does occur, he conceded, but similarly if there is a decline it should also be minimal.
While Greenspan said the initial expectations of some analysts that the euro would replace the dollar in many portfolios, including those of central banks, were "probably overstated," he noted the euro has existed for only "a very short time by standards of international monetary history."
"To the extent that the capital flows we have observed from Europe to the United States are a critical piece of the story, the future will be determined, at least in part, by the success in Europe of matching expected rates of return on U.S. assets," he said.
siliconinvestor.com |
