ECONOMY

Garganas says strong euro is good for Europe, sees growth in 2004

European Central Bank governing council member Nicholas Garganas said on Monday the euro’s strength so far does not threaten the single currency area’s economy, expected to gain speed in the second half of 2004. «(The euro’s strength) for the moment does not pose a serious problem for the European Union while it also brings positive effects,» Garganas, who heads the Greek central bank said, confirming remarks made to Greek daily Eleftherotypia in an interview. «The euro’s strength would further reduce the rate of inflation, boosting household real incomes and private consumption,» he said. The euro’s surge to levels above $1.18 earlier this month sparked concerns that it might stall the fragile recovery by making eurozone exports more expensive, but ECB officials have repeatedly played down such a risk. On Monday the euro was trading off its recent peaks with the dollar lifted by expectations of an improvement in the outlook for the US economy. Commenting on interest rate policy, Garganas said he felt current monetary policy was accommodative. «Interest rates are at historically low levels and money supply is growing at 8.0 to 8.5 percent, which is a high rate. Therefore, it is not the lack of a loose monetary policy stance that inhibits economic recovery,» Garganas said. The ECB has kept its benchmark interest rate at an all-time low of 2.0 percent since last June. «It’s the uncertainty among consumers and investors that is the basic factor. This is why we underline the need to respect the Stability Pact, to limit large budget deficits and proceed with structural reforms,» he said. He said a marked acceleration of growth is not projected until the second half of next year. «Projections indicate that (economic) recovery will be faster in the second half of next year. Only toward the end of 2004 will actual expansion approach the eurozone’s potential rate of growth of 2.0-2.5 percent,» he said. Garganas said survey data indicate the eurozone’s economy began to recover in the third quarter, but it was not clear how strong the recovery was. «We do not have a clear picture of how strong the recovery is. It is estimated that recovery continues to be very slow in the second half of 2003.» (Reuters)