Banker defends strong euro

Nicholas Garganas, the Bank of Greece’s governor, added to the debate on the euro’s rapid recent appreciation yesterday when he said it was a long-overdue move in the right direction. Speaking in Athens, Garganas, a member of the European Central Bank’s rate-setting council, said the single currency’s present level better reflected the eurozone’s solid fundamentals after a period of weak performance. «What we see now is the strengthening of the euro. It is a move in the right direction to correct world imbalances,» Garganas told a conference on the euro’s impact on the Mediterranean region. «What we see now is the realignment between the dollar and the euro that is long overdue,» Garganas said. Concerns that a US-led war against Iraq would bode ill for the greenback pushed the dollar to a series of three-year lows against the euro last month before it mounted a mini-rally over the last week. One euro bought 1.08 dollars yesterday compared with around $1.045 at the beginning of the year. The rise in the single currency has concerned some top EU and ECB officials because of the potential impact on the competitive position of eurozone exporters, and therefore on efforts to revive the weak European economy. Ernst Welteke, Garganas’s German colleague on the ECB council, said last week that the currency was rising on the geopolitical situation, and there could be «negative consequences for political developments» if it continued to do so. Asked whether major central banks should try to stabilize foreign currency markets, Garganas said any such attempts were doomed to fail given the vast size of the market. «It’s really futile to intervene in exchange markets for a period of time to stabilize an exchange rate or reverse a trend,» he said. The ECB has not intervened in its own account since November 2000, although the Bank of Japan intervened last month after the yen rose to a four-month high against the dollar. Later, Garganas said the spread between euro and US official interest rates has had little impact on currency levels. «We’ve seen for a considerable period of time that interest rate differentials have not affected the exchange rate much,» he told the conference. «There are other factors that are far more important.» The ECB’s refinancing rate currently stands at 2.75 percent while the US Fed’s key rate is at 1.25 percent. European Monetary Affairs Commissioner Pedro Solbes, who was also present at the conference, said he had long called for a stronger euro, but that his wish was coming a bit too quickly for comfort. Solbes created a furor yesterday when unions reacted strongly to comments he made on Monday on a different subject – social security. Solbes said that Greece’s social security system needed further reforms, drawing the ire of Christos Polyzogopoulos, president of the General confederation of Greek Labor (GSEE). «These is inadmissible pressure… stemming from a neoliberal viewpoint and aiming to erode social rights,» he said. (Reuters, Kathimerini)