Duisenberg frets over euro's credibility

THE PRESIDENT of the European Central Bank warned yesterday that a growing public perception that the euro was weak threatened to undermine the currency.

Wim Diusenberg admitted that the euro's credibility as a trading currency was a "cause for concern". His remarks came as European officials tried to bolster the euro by predicting that it would appreciate next year, and that the 11-nation euro zone was set for low-inflation growth.

But the currency failed to respond. Figures yesterday showing that European inflation surged unexpectedly to a two-year high, and a forecast that Germany's economy would grow strongly next year, did not help either. Just days before its first birthday on 1 January, the euro was languishing at about $1.01 to the dollar compared with its launch value of $1.17.

Mr Duisenberg said growth in the euro zone would rise to about 3 per cent next year from 2.1 per cent this year. In an interview with Frankfurter Allgemeine Zeitung he said he hoped this would boost the currency. But he added: "The public sees the external value of the euro and perceives it as a weak currency. That is the only cause for concern for the ECB. I'm convinced that the euro has the potential to appreciate."

His chief economist, Otmar Issing, said the economy was growing substantially faster than anticipated, increasing the danger of rising inflation. He told Die Welt: "The economy right now is growing substantially faster than could have been expected in the spring."

Official figures showed that inflation surged to 1.6 per cent last month, its highest since November 1997, up from 1.4 per cent in October. The main factor was the leap in oil prices, which pushed up energy costs by 7.2 per cent. Core inflation ticked up 0.1 points to 1 per cent. Mr Duisenberg had earlier said he believed inflation would peak at 1.7 per cent in 2000.

The IFO economic institute said growth in the German economy, the largest of the 11, would surge to 2.7 per cent in 2000 from 1.4 per cent this year.

Italy's economy grew more than expected in the third quarter, rising by 0.9 per cent on the previous quarter and 1.2 per cent on a year ago.