Trichet fails to ease fears over euro

The European Central Bank president Jean-Claude Trichet yesterday refused to be drawn on whether he would intervene to stop the rise of the euro, as he struck a bullish note on prospects for economic recovery in the 12-nations currency zone.

Appearing before the European Parliament, M Trichet gave a faultlessly bland performance, refusing anything but the most general comment on the 20 per cent appreciation of the European single currency against the dollar. "When we have something to say, we say it," he told the parliament's Economic and Monetary Affairs Committee, as he refused to speculate on the range within which the euro should normally find itself.

M Trichet added: "On the exchange rate, I think you understand that I am standing strictly by our agreement, both in Europe and in the wider world," referring to statements by finance ministers and central bankers from both the euro zone and Group of Seven major industrialised nations. However, he made clear that any decision on intervention would be one for the Governing Council of the ECB, without interference from EU finance ministers.

In his opening remarks to the committee, the ECB president said the euro zone was gradually recovering and inflation was on track to fall below 2 per cent this year. Costs of borrowing were described as "appropriate".

He was, he added "more confident that the recovery did indeed begin in the second half of 2003 and has strengthened our expectation of upswing in economic activity." That implies that the markets are correct in the expectation that interest rates will remain unchanged in the months ahead.

Meanwhile M Trichet called for "improvements" to the budget deficit rules - which lay down a 3 per cent ceiling of gross domestic product - that Germany and France are set to break for the third year.