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Strategies & Market Trends : Heinz Blasnik- Views You Can Use

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To: LLCF who wrote (2015)	5/30/2003 6:42:54 AM
From: Haim R. Branisteanu	Read Replies (2) of 4912

Schroeder Says Euro's Appreciation May Threaten German Industry May 30 (Bloomberg) -- German Chancellor Gerhard Schroeder said a further strengthening of the euro would harm exports from Europe's largest economy, which is struggling to avoid its second recession in as many years. ``If the euro's rapid gains continue, it will threaten the economy of Germany, which is an exporting country,'' Schroeder said in an interview with the Moscow-based Kommersant daily newspaper. ``Already today, German products are becoming too expensive outside the euro zone.'' German companies including Volkswagen AG and Bayerische Motoren Werke AG have said the euro's appreciation to a four-year high against the dollar is hurting profitability. New orders to the German plant and machinery industry fell in April, led by a drop in exports, the VDMA trade association said today. Germany's economy contracted in the first quarter as Europe's single currency advanced. The euro has surged 19 percent against the dollar in the past six months and on Tuesday rose to a record against the U.S. currency. It traded at $1.1839 at 12:26 p.m. in Frankfurt. Exports account for about a third of German gross domestic product and helped save the economy from contraction last year. Schroeder's comments echo concerns voiced by other politicians that the stronger euro is weighing on the economy of the dozen states sharing the currency. French Finance Minister Francis Mer said earlier this month that the euro's exchange rate is not ``favorable to growth.'' Damping Inflation The euro's appreciation is also putting pressure on the European Central Bank to lower interest rates and revive Europe's economy. ECB Chief Economist Otmar Issing said on Tuesday that the euro's rise is damping inflation in the region, giving the bank ``maneuverability'' on borrowing costs. The ECB's current benchmark lending rate stands at 2.5 percent and a further reduction would take borrowing costs to the lowest for any country in the 12-state region since at least 1948. The bank's governing council next meets to discuss rates on Thursday. Schroeder suggested that the stronger euro is eroding an advantage that German companies enjoyed over rivals in other companies across the world in the previous four years. ``Until now, the euro's rate was clearly too low,'' Schroeder said. ``German businesses are no less competitive today than before the introduction of the euro.'' ECB Vice President Lucas Papademos said on Monday that the euro's exchange rate is close to its average level over the past 15 years. The euro dropped as much as 28 percent in the four years after its introduction in January 1999. Schroeder said that the euro's appreciation shows it's becoming a ``key currency for international financial markets,'' a development that the German chancellor ``welcomes.'' (Kommersant 5-30 10 kommersant.ru ) Last Updated: May 30, 2003 06:30 EDT

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