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Gold/Mining/Energy : Euro Impact on Gold, USD ... -- Ignore unavailable to you. Want to Upgrade?

To: banco$ who wrote (232)	1/14/1999 7:08:00 PM
From: banco$	Respond to of 289

"Ministers Heat Up Tussle With ECB on Euro Rates" - By John Schmid International Herald Tribune Paris, Thursday, January 14, 1999 FRANKFURT - - Finance ministers from Germany and France threatened Wednesday to escalate an ideological feud with the European Central Bank over political influence on the euro's exchange rate. ''Market players should know that we do not welcome an excessive increase in the euro,'' Finance Minister Oskar Lafontaine of Germany and his French counterpart, Dominique Strauss-Kahn, said in a joint statement. Amid growing worries that a strong euro could inflict damage on an already slowing European economy putting the region's exports at a disadvantage, the two officials said the 11 euro-zone governments should adopt a ''coherent stance'' on exchange rates and possibly establish ''general guidelines for exchange rates'' between the dollar and euro. The memorandum, which repeated German government arguments for interest-rate reductions, shows that political pressure on the European Central Bank will not disappear anytime soon, even if it clashes with the spirit of the new bank's political autonomy. ''That pressure will always be there,'' said Joachim Fels, an analyst at Morgan Stanley Dean Witter in London. ''It is clear that politicians would not give up in trying to play a role in exchange-rate policy.'' A spokeswoman at ECB headquarters in Frankfurt declined to comment on the finance ministers' remarks, which were contributed to the weekly German newspaper, Die Zeit. The unceasing tussle over currency rates, which began in September with the election of a leftist German administration, reflects how powerful they are as an economic policy tool, economists said. Even before the European Central Bank began operations less than two weeks ago, it had to fend off German government demands to impose exchange-rate corridors on the euro. ''The governments in large part hold the responsibility to eliminate the inadequacies of the markets,'' the statement said. It cited a ''philosophical convergence'' across the European Union, with 13 of the 15 EU nations held by center-left governments. Currency instability is expected to be on the agenda at a two-day meeting of European and Asian finance ministers Friday in Frankfurt. With Germany holding the presidency of the Group of Seven industrial economies this year, currency stabilization plans are sure to be on the agenda at the G-7 summit talks in June in Cologne. ''The euro and dollar collectively will cover most of the global financial transactions,'' according to the statement. ''That means the exchange rates between the dollar and euro will define the global economy.'' Eckhard Schulte, a Frankfurt-based economist for the Industrial Bank of Japan Ltd., said the statement could keep frictions out in the open between the central bank and the governments. ''The ECB will not be very amused by this proposal,'' he said. The Maastricht treaty on European monetary union allows governments in the euro zone to issue general guidelines on exchange rates, but the treaty also gives the politically autonomous central bank the right to override the guidelines if the bank thinks they conflict with its inflation-fighting mandate.

To: banco$ who wrote (232)	1/14/1999 7:19:00 PM
From: banco$	Read Replies (2) \| Respond to of 289

ECB President Wim Duisenberg discusses euro FX policy in speech, 14 Jan. 1999: "The international role of the euro and the ECB In its monetary policy strategy, the Eurosystem deliberately does not specify a target for the exchange rate of the euro against the US dollar or the Japanese yen. Although it will always stand ready to exchange views with other central banks concerning the development of exchange rates, there are no explicit or implicit target zones for the euro exchange rate against non-EU currencies. The euro area is a large, relatively closed economy, similar in this respect to the United States. Pursuing a target for the euro exchange rate could easily jeopardise the maintenance of price stability. The level of interest rates required to sustain an exchange rate target may, in some cases, not be that which best serves the maintenance of price stability over the medium term. I might add that it may also conflict with the achievement of other domestic policy objectives. It could be very painful if it were necessary to raise interest rates in a recession in order to defend the exchange rate of the euro. Finally, it should be acknowledged that today we are living in a world with high capital mobility. Exchange rate arrangements that could be implemented thirty years ago may no longer be feasible. The required amount of foreign exchange reserves could simply be too large. Within the Eurosystem's monetary policy strategy, the euro exchange rate is the outcome of current and expected economic policies and developments in both the euro area and elsewhere, and of the market participants' perception of these policies and developments. Supporting the Eurosystem's approach, the Ministers of Finance, who are assigned ultimate responsibility for the exchange rate of the euro by the Maastricht Treaty, have agreed not to issue so-called "general orientations" for the exchange rate policy to the Eurosystem other than in clearly exceptional circumstances, such as when there is a substantial and persistent misalignment of the euro against other currencies. However, the absence of a target for the exchange rate of the euro against major international currencies does not imply that the ECB ignores or is indifferent to the exchange rate of the euro vis-à-vis the US dollar or the Japanese yen. The exchange rate will be monitored as one of the indicators of monetary policy, within the broadly-based assessment of the outlook for price developments that constitutes one pillar of the overall strategy. Nor does the absence of exchange rate targets suggest that these rates will necessarily be unstable or volatile. On the contrary, the pursuit of stability-oriented monetary and fiscal policies puts in place one of the major prerequisites for stable euro exchange rates. The Eurosystem's stability-oriented monetary policy strategy is a significant contribution in this regard. Absolute stability of the exchange rate is, of course, impossible to guarantee. It would not even be desirable if, for example, the United States and the euro area were to go through business cycles that were not fully synchronised. This possibility cannot be ruled out, as even recent history has shown." (for full text of speech: ecb.int