ECB is urged to intervene as euro surge threatens growth

Click to follow
The Independent Online

Leading European finance ministers are today expected to pile the pressure on the European Central Bank to intervene to prevent the surge in the euro from pushing the Continent back into recession.

Hopes of co-ordinated intervention have been boosted by news that Jean-Claude Trichet, the president of the ECB, and Alan Greenspan, his counterpart of the US Federal Reserve, are meeting later this week.

Finance ministers from the 12 members of the euro meet today against the background of Friday's figures showing that GDP growth slowed to a 15-month low in the autumn.

They are also likely to hint at the need for cuts in interest rates to stimulate domestic demand in the economy, which posted GDP growth of just 0.3 per cent in the three months to September.

"The strength of the euro and high oil prices continue to cause concern about economic prospects for the eurozone," Tom Levinson, an economist at ING Financial Markets, said.

"Politicians are particularly keen to see the euro weaken, and pressure on the ECB to take action could intensify with the euro's strength likely to be a key discussion point at the finance ministers' meeting."

Analysts said that the euro, which has swung between $1.28 and $1.30 against the dollar in recent days, would suffer more volatility as the market gauged the likelihood of currency intervention.

The ECB has already voiced some concerns over the euro's rise, with Mr Trichet and other members of its governing council calling it "brutal" and "unwelcome".

Analysts at Goldman Sachs said they did not expect intervention unless the euro hit $1.40, which would mark a 16 per cent rise since early September.

However, they said that with inflation above target the ECB might see euro strength as a "necessary evil" to quash inflationary pressures. "Even if it is not enough to warrant a cut in rates, currency strength adds to our conviction that monetary policy is on hold until well into the second half of 2005," Dirk Schumacher, one of its European economists, said.