Markets are poised for ECB intervention

CURRENCY MARKETS are poised to see whether the European Central Bank (ECB) intervenes today to stem the fall of the euro, as Italy insisted it should not be made a scapegoat for the currency's troubles.

There was growing speculation at the weekend that the ECB would take advantage of holidays in the two biggest foreign exchange markets - a bank holiday in London and Labor Day in New York - to make its move.

The euro has fallen by 10.6 per cent against the dollar since it was introduced in January, and by 1.6 per cent last week alone. It was trading at $1.0430 on Friday, and many dealers are expecting it to hit parity this week.

Hans Tietmeyer, President of the Bundesbank and member of the ECB board, said last Friday he "would not be happy" if the euro were to decline further.

Mr Tietmeyer's designated successor, Ernst Welteke, said he did not think last week's decision by European finance ministers to allow Italy to book a higher deficit than stipulated by the euro stability pact should be repeated. "A precedent should not be made out of this... After all, public debt is a problem everywhere," Mr Welteke told Germany's Welt am Sonntag.

Giuliano Amato, the Italian Treasury Minister, said Italy was not to blame for the weak euro. "The mistake they make when they blame Italy for the weakness of the euro against the dollar is in confusing a let- up in financial rigour with a simple forecast of difficulties in the economic outlook," Mr Amato told Corriere della Sera in an interview published yesterday.

"Let's be clear on one point: there has been no let-up in financial rigour. Both spending and revenues are absolutely in line with forecasts," he said.

Mr Amato won a key concession when EU finance ministers agreed that, due to slow growth, Italy could overshoot the euro zone's 2 per cent budget deficit target this year.

Mr Welteke said the euro required "close monitoring", but he was convinced it would recover. He cautioned against highlighting the benefit a weaker euro has on exports while ignoring inflation risks. Central bank intervention was not viable in supporting a currency, he said.