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To: Earlie who wrote (239482)	5/8/2003 1:35:12 PM
From: Haim R. Branisteanu	Read Replies (2) \| Respond to of 436258

The ECB did not lower rates - even that EZ economy is in worst situation than that of the US with big strikes looming in France and Germany I think that the US is handling the currency game smartly. A lower USD will add an incentive to the US economy, by the fact that US products will be more competitive and more on T&L will be spend locally giving US airlines and hotels a much needed moderate boost. Further the low USD will make the reconstruction of Iraq were much US tilted, for pricing reason, and leave many EZ companies out of the competitive bidding. My only hope is that this administration will not overplay it to the extent that it will trigger inflation and capital outflow. IMHO they should hold around this levels and any more USD depreciation will be counter productive.

To: Earlie who wrote (239482)	5/8/2003 2:14:36 PM
From: Haim R. Branisteanu	Respond to of 436258

Stalemate May 8th 2003 From The Economist Global Agenda The European Central Bank has again decided against cutting interest rates, in spite of Europe’s deteriorating economic outlook. Why are the world’s central banks so reluctant to ease monetary policy? PERHAPS it is something in the Frankfurt air. Europe’s central bankers certainly seem immune to the growing concern about the euro area’s deteriorating economic outlook. Despite clear signals that Germany, Europe’s biggest economy, is dangerously close to another recession, the European Central Bank (ECB) decided yet again not to cut interest rates when it reviewed monetary policy on May 8th. ECB members had signalled their intention to stand firm ahead of the meeting, so the decision did not come as much of a surprise to most economists. But given the extent of Europe’s economic problems, it did come as a disappointment. The ECB announcement came less than an hour after the Bank of England had also decided against any change in interest rates and less than two days after America’s Federal Reserve took a similar stand. Japan’s central bank has less room for manoeuvre because interest rates in the world’s second-largest economy are already at zero; but the Bank of Japan has persistently refused to relax monetary policy by unconventional means, such as injecting money directly into the economy, at least to the extent that economists would like to see........................... Which brings us back to the ECB, which rejected interest-rate cuts in spite of a sharp, counter-inflationary rise in the value of the euro against the dollar and the pound. The euro is now at its highest level against the dollar for four years; it has risen by 24% in the past year. The monetary tightening that represents more than offsets the ECB’s last interest-rate reduction in March. Data about the German economy released on May 7th show that manufacturing, which saw orders drop by 3.9% in March, is suffering both from weak domestic demand and from a fall in export orders. The high euro is beginning to bite and adding to Germany’s economic headaches. The ECB justified its stance, as it has on so many previous occasions, by reiterating the importance of meeting its target for price stability. This it defined as inflation of less than 2%. After the May 8th meeting, the ECB president, Wim Duisenberg, said the bank did not expect inflation to fall below the 2% upper limit until later this year, because of recent increases in oil and food prices. The bank’s decision was, he said, “consistent with the preservation of price stability over the medium term.” Mr Duisenberg reiterated his view that European governments need to get their fiscal houses in order and to push ahead with structural reforms. Few economists will be impressed with the ECB’s defence of its position. One of the problems is the one-size-fits-all nature of euro-area monetary policy. The ECB is having to make decisions about interest rates for countries with widely divergent economic conditions and inflation rates. Some, like Ireland, have uncomfortably high inflation rates, and for them a relaxation of monetary policy would be unwelcome. But a recession in Germany would be even more unwelcome and would have far-reaching implications for Europe’s economic health. The other bone of contention is the ECB’s attachment to an asymmetrical inflation target. The Bank of England’s inflation objective is defined as a middle point in a range: overshooting the target is no more undesirable than undershooting it. The ECB, in contrast, tends to place undue weight on getting inflation down below 2%. After a fundamental review of its monetary strategy, which took five months, the ECB announced on May 8th that it was sticking with its current definition of price stability. When some countries are barely growing, there is a risk that this emphasis on disinflation could push them towards deflation. The Federal Reserve has grasped the importance of fighting this battle. The ECB still seems intent on fighting inflationary ghosts, no matter what the consequences. economist.com