City of London has thrived since launch of euro, says Bank of England Governor

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The Independent Online
THE CITY of London has thrived since the launch of the euro, Eddie George, Governor of the Bank of England, said yesterday.

London had played an active part in the development of a broad and liquid market in euro assets, contributing to the success of the currency, the Governor, who has described himself as a "euro-pragmatist", told a City University conference. "This activity is, in fact, the greatest contribution the UK can make to that success from the outside," he said.

Competition between European financial centres could benefit them all, he argued, adding: "I have every confidence in the City to thrive in this competitive environment."

Mr George's remarks were welcomed by opponents of British membership of the single currency. One of the Government's five criteria for recommending joining the euro is that it will have to benefit the City.

The currency held on to its recent gains yesterday as new figures confirmed the strength of the economy in Germany. Unemployment fell by a greater- than-expected 29,000 in November, with a decline in the West more than offsetting an increase in joblessness in the East.

The level of vacancies reached a record high, suggesting there is strong labour demand. Bernhard Jagoda, president of the Federal Labour Office, said December's jobless total was also likely to show a decline.

Other figures showed German GDP rose by 0.7 per cent in the third quarter, taking the year-on-year growth up from 0.8 per cent to 1.3 per cent. Exports continued to recover thanks to the competitiveness of the euro, while consumer spending bounced back from a decline in the second quarter.

"The economic recovery should gather pace in 2000," said Robert Lind of ABN-Amro.

The euro continued to trade at just over $1.02 yesterday, although more superb figures on the US economy did give the dollar a bit of a boost. The Commerce Department said productivity had increased even more than first estimated in the third quarter. The annual growth in GDP per employee was revised up from 4.2 per cent to 4.9 per cent, the fastest in seven years.

Correspondingly, labour costs per unit of output were extremely low, actually falling by 0.2 per cent in the third quarter rather than rising by 0.6 per cent as first estimated.

"It is hard to see where inflation is supposed to come from under these circumstances," said Gerald Cohen, an economist with Merrill Lynch in New York.

Analysts do not expect the Federal Reserve to raise interest rates when its Open Markets Committee meets on 21 December.