Finance ministers from the dozen countries that share the euro may pressurethe European Central Bank president on Friday to follow the U.S. FederalReserve's lead in reducing interest rates. Ministers from 13 Eastern Europeancountries will chime in on Saturday, saying that the economic slowdownthreatens their timetable for joining the European Union. And hovering in the background at a meeting of European finance officials inMalmoe, Sweden is renewed debate over how long Duisenberg will last in thejob of Mr. Euro. ``The eyes are all directed at the ECB as the one that's not moved yet,'' saidAlison Cottrell, European policy analyst at UBS Warburg in London. ECBoptimism about the economic outlook ``seems a little out of touch withreality.'' The central bank kept its main rate at 4.75 percent last week, bucking rate-cut calls by industry leaders and politicians. It is the world's only major centralbank not to reduce borrowing costs this year to counter the falloff in economicgrowth. U.S. central bankers cut for the fourth time yesterday, dropping theovernight lending rate by a half-point to 4.5 percent. ``It certainly turns up the heat on the ECB,'' said Corrado Faissola, managingdirector of Banca Lombarda SpA of Italy.
Bundesbank's Image
``I hear, but I do not listen,'' Duisenberg said of the rate- cut chorus. One manhe ignored was Belgian Finance Minister Didier Reynders, who as chairman ofthe panel of euro finance ministers attended the ECB's meeting and urgedthem to respond to ``concerns about the slowdown.'' A report today that inflation held at 2.6 percent in March may buttress theECB's caution, analysts said. Inflation has been above the bank's 2 percentceiling for 10 months. Following growth of 3.4 percent pace in 2000 -- the fastest in a decade --expansion in the euro zone will ease to around 3 percent in 2001, according tothe European Commission. Private analysts are less optimistic, seeing growthas low as 2 percent. Also in the room Friday will be Finance Minister Hans Eichel of Germany,which designed the central bank in the image of its politically independentBundesbank. Eichel came close to breaking German doctrine on April 5 whenhe called on the ECB to ``consider'' the slowdown when setting interest rates. Austria's finance minister, Karl-Heinz Grasser, stepped over the lineyesterday, saying: ``I have asked for cuts and I will continue to ask for cuts.It's an instrument we have at our disposal, so why don't we use it?''
Confidence Low
While growth will be close to the 2.5 percent ``potential'' rate estimated by theECB, analysts say the risk is of a sharper slowdown. Business confidence inGermany, France and Italy -- the bloc's three largest economies, generating70 percent of gross domestic product -- is at its lowest in about a year and ahalf. German unemployment rose for a third month in March, while industrialproduction in France -- the best-performing of the big three economies for thepast four years -- slipped for the first time in four months in January. Belgium's Reynders, who will chair Friday's first session, had a public run-inwith Duisenberg last year. He accused the central banker of having ``noreason'' to skip a meeting in Versailles, France in September that cleared theway for ECB intervention in the currency markets to support the euro. Purchases by the central bank lifted the euro as high as 95.94 U.S. cents onJan. 5. It has since slipped to 88.23 cents, close to its value of 87.42 cents onthe day of the Versailles meeting and not far from a record low of 82.31 centson Oct. 26. The euro began life at $1.17 on Jan. 1, 1999. Last week's ECB decision to stand pat came after several weeks of mixedmessages from central bankers including Duisenberg and his designatedsuccessor, Bank of France Governor Jean-Claude Trichet.
Duisenberg's Job
Trichet was the first to dismiss the threat of inflation, on March 23. It then fellto Trichet to read out the ECB's statement defending its March 29 refusal tocut. Duisenberg justified the latest no-cut decision, on April 11, by discountingthe risk of a global recession. Duisenberg got the job as the first Europe-wide central banker after bowing toFrench pressure not to complete his eight- year term to make way for Trichet.While pledging to quit after euro cash goes into circulation in 2002, he said atthe May 1998 euro summit that he alone would decide when to go. Now some central bankers and politicians, with the help of the media, areseeking to force the issue. The French head of the European Bank forReconstruction in Development, Jean Lemierre, said last month thatDuisenberg will leave in April 2002. Belgium's Reynders called on Duisenberg to set a date for his departure,telling Germany's Boersen-Zeitung today that a firm date would ``remove thepersisting uncertainty.'' ``Trichet would do well as Duisenberg's successor, even if he's got a fewproblems back home,'' Faissola of Banca Lombarda.
Trichet's Troubles
Lemierre himself and French Finance Minister Laurent Fabius may becandidates for the job, now that Trichet is under investigation for his role in thecollapse of Credit Lyonnais SA, a state-owned French bank, Germany'sHandelsblatt newspaper reported on April 12, without citing sources. Trichet has denied any wrongdoing as French Treasury director in charge ofsupervising the bank from 1987 to 1993. In addition, France will elect a newparliament next April and a president next May, making Duisenberg unlikelyto quit before then, analysts said. One thing seems sure: even if he stays until his term ends in 2006,Duisenberg won't be around for the first Eastern European countries to adoptthe euro. The earliest that Eastern countries would join the EU is 2004, andeuro entry would take at least another two years. Poland, the largest of the future members, expects economic growth of 4.5percent this year, while non-government forecasts put growth as low as 3percent. The slowdown became evident in the fourth quarter of 2000, when theeconomy expanded 2.4 percent, the weakest pace in two years.
`Even Less Realistic'
Eastern manufacturers, once links in the Soviet supply chain, have steeredtheir exports to Western Europe. The EU buys 80 percent of Poland's exportsand 75 percent of Hungary's. Lower export income would make Eastern statesmore dependent on lending from abroad, spelling higher interest rates andless growth. ``Every sign on weakening of the economic activities in Western Europe,especially in Germany, has to be watched very carefully since it must have aneffect on demand for imports from Poland,'' said Tadeusz Chroscicki, directorof the government's economic studies center. He called the official forecast ``even less realistic than it was before, when weconsidered only domestic threats.''