Split emerges over euro intervention

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A SPLIT emerged yesterday between Europe's leading financiers and politicians over whether the European Central Bank should intervene to support the weak euro, writes Philip Thornton.

Finance ministers attempted to dampen speculation that the ECB is poised to intervene after two of Europe's most powerful central bankers hinted a move was on the cards.

The euro staged a recovery against the dollar yesterday following comments by Ernst Welteke, president-designate of the Bundesbank, on Sunday and by the current president, Hans Tietmeyer, on Friday. After a day of light trading, the euro ended up half a cent yesterday after touching a low of $1.039 on Friday.

Belgian finance minister, Jean-Jacques Viseur, said he was against intervention or raising interest rates to buoy the euro. "I am not in favour of intervention," he said.

His Portuguese counterpart, Antonio Sousa Franco, said the weakness was due to economic and political problems rather than inherent instability.

Mr Welteke said on Sunday the euro's recent weakness meant it now needed "close monitoring". Mr Tietmeyer said he "would not be happy" if the euro fell further.

Other senior ECB officials declined to back up Mr Welteke's comments, instead concentrating their remarks on the need for member states to stick to the tough fiscal rules that underpin the euro.

The decision by EU finance ministers last Tuesday to allow Italy to relax its target of cutting government borrowing to 2 per cent of GDP in 1999 prompted the euro to plunge against the dollar.

Otmar Issing, the ECB's chief economist, said it should be a warning to other EU governments to keep their state finances in order. "The more than understandable negative public reaction and the drop in the external value of the euro should be sufficient warning," Professor Issing told a German weekly magazine out today.

Klaus-Dieter Kuhbacher, a member of the Bundesbank's council, said the euro would fall further unless there was a clear signal that member states would abide by the stability pact.

Analysts said the ECB would not intervene to support the beleaguered euro unless its decline accelerated.