Market intervention 'available' for euro, says European Central Bank

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The Independent Online

Wim Duisenberg, president of the European Central Bank, yesterday said the slump in the value of the euro was "clearly a cause for concern", and reminded the markets that intervention was "available" as an instrument.

Wim Duisenberg, president of the European Central Bank, yesterday said the slump in the value of the euro was "clearly a cause for concern", and reminded the markets that intervention was "available" as an instrument.

"The fact that the euro has continued to decline in recent months is not in line with strong economic fundamentals" in the eurozone, Mr Duisenberg told the European parliament at a hearing yesterday. Asked about the possibility of intervention to prop up the ailing currency, Mr Duisenberg replied: "I will fully inform the markets and you about intervention after it has taken place, not before. The instrument is available but when and how to use it one can never discuss beforehand."

The euro fell to a new low of 85.50 US cents yesterday, before bouncing back after Mr Duisenberg's remarks, to 86.15 cents.

Earlier, the European Commission president, Romano Prodi, suggested that it might make sense for the US to help in a managed currency intervention by central banks to support the euro. "Nobody can live forever with such a current account deficit [as the US]," he told a German magazine.

However, Mr Prodi also argued that such a solution was "never simple", particularly in the run-up to a US presidential election.

Mr Duisenberg, meanwhile, underlined the twin threat to price stability from higher oil costs and the weaker euro, and said the inflation rate will probably remain above 2 per cent "for some months to come". Inflation in the eurozone ran at a 2.4 per cent in July, breaching the central bank's ceiling for a second straight month.

At the two-hour hearing, the ECB president brushed aside one call for his resignation from a French Gaullist MEP, and insisted that the euro had been successful. The currency has secured price stability and removed exchange rate variations within the eurozone. Mr Duisenberg also explained his absence from last weekend's informal meeting of EU finance ministers, saying he had a commitment to speak at a conference in Canada, where he had been to "sell the euro in North America".

Meanwhile, the Governor of the Bank of England yesterday said Britain would almost certainly have suffered an inflationary boom if it had joined the euro at its launch last year.

Sir Eddie George said that there were "no easy answers" to the argument that a common interest rate cannot be set for individual members of the eurozone. Although he tempered his remarks with a dispassionate exposition of the arguments for and against the euro project, they were seized on by eurosceptics.

Sir Eddie told the British-Swiss Chambers of Commerce: "If we had joined EMU from the start and had eurozone interest rates over the past 18 months or so, it is very difficult to envisage how we would have avoided an inflationary boom in the UK."

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