The single currency got a vote of approval yesterday from the chief economist of the Bank of England, even as the euro faltered in its recovery. John Vickers said the euro could help boost growth in the euro zone by guaranteeing price stability and deepening the single market.
At a conference in Brussels, Mr Vickers said: "The prime contribution that monetary policy can make to conditions for sustainable growth is to secure and maintain price stability." Monetary union should extend price stability and "be supportive of conditions for growth," he said.
His comments came as Romano Prodi, head of the European Commission, predicted the euro would overtake the dollar to be the dominant currency.
Mr Vickers said the big policy challenge in the modern era had been to achieve price stability. "The architecture of monetary union does this... and the new monetary framework in the UK, which has just had its third birthday, is constructed with similar intent."
Mr Vickers pointed out that there had been substantial and damaging volatility in exchange rates for 20 years, and it made sense to try to avoid major misalignments between members through monetary union. "Monetary union should on the whole help to prevent large misalignments among the real exchange rates of member countries." However, locking currencies together made it essential member economies were flexible enough to adjust in other ways.
At the same conference, Otmar Issing, chief economist at the European Central Bank, echoed this warning. "The euro area is hampered by a number of severe structural rigidities," he said.
The euro slipped against other currencies yesterday, having climbed earlier in the week as much as 3 per cent against the dollar. Yesterday it held just above $0.90, compared with the week's higher of $0.9125. Against sterling it ended at 59.86p. The pound's index against a range of currencies rose by 0.9 to 109.2.Reuse content