ECB Policy Makers Say Euro Strength Reflects Economic Outlook


European Central Bank policy makers said the euro's appreciation shows investors are confident in the region's economic prospects, rejecting French calls to stem its rally to a record against the dollar.

``The strength of the euro shows, to some extent, that it has become a safe haven in our globalized financial world,'' French central bank governor Christian Noyer said at a conference in Riga today. Speaking in Rome, Italy's Mario Draghi told lawmakers ``the euro-dollar reflects the economic fundamentals of the different economies.''

Officials from the 13-country euro region failed to find a common position on the currency on Oct. 8 as they prepare for next week's meeting of the Group of Seven nations in Washington. While French President Nicolas Sarkozy has said the appreciation is hurting European exports, German Finance Minister Peer Steinbrueck said two days ago ``I prefer a strong euro.''

Draghi also rebuffed a call from French Finance Minister Christine Lagarde for officials to discuss potential euro sales to stem its 7 percent appreciation against the U.S. currency this year.

``There is a lot of hesitation to intervene,'' said Draghi, when asked by a lawmaker how the euro could be pushed down to $1.20 from $1.50. ``It's not easy.''

Europe's single currency, which rose as high as $1.4283 on Oct. 1, was worth $1.4146 at 12 p.m. in Frankfurt.

Trichet's G-7 Line

ECB President Jean-Claude Trichet has so far refused to signal increased concern about the exchange rate, sticking to the G-7's agreed line that ``excess volatility'' in exchange rates is ``undesirable.''

Recent economic reports have sent mixed signals about the health of the European economy as companies try to cope with a stronger currency, near record oil prices and a surge in borrowing costs after a credit-market rout.

German exports rose the most in more than a year last month and French shipments climbed to a record. At the same time, German business confidence fell to a 19-month low in September and European service industries from insurers to airlines grew at the weakest pace in two years.

The price of crude oil rose to $83.90 per barrel last month and has climbed 32 percent this year. A barrel was worth $80.33 today.

That's making it harder for the ECB to assess the future course of interest rates. Greece's central bank said today that the ECB's monetary policy stance is ``still rather accommodative,'' suggesting it favors a further increase in the benchmark rate. Trichet last week dropped similar language in his monthly press conference.

ECB council member Erkki Liikanen said in an interview late yesterday that it's ``too early'' to assess the effect of surging credit costs on the global economy.

The ECB, which shelved a planned rate increase last month, has raised its benchmark eight times since 2005, taking it to 4 percent.

 


Bloomberg
10/10/2007 6:45:44 AM