Milan, June 27 (BridgeNews) - Depreciation of the euro is over and inflation in the euro zone will fall in 2002 to just below the European Central Bank's 2% target, ECB president Wim Duisenberg said Wednesday. In an interview with Italy's La Repubblica, Duisenberg said there is no risk of recession in Europe and, on a personal note, said that in view of his age it was unlikely he would complete his 8-year mandate as ECB president.
"I think that depreciation of the euro is finished," Duisenberg said, adding that the single currency has a strong upside potential. "The exchange rate is not irrelevant, and not just because of its impact on price stability," he said. "A weak euro does not help win the confidence of the people."
There is no risk of recession in Germany and in Euroland, Duisenberg said. "All the parameters point to growth in 2001-2002 more or less in line with the European economy's potential growth trend of between 2% and 2.5%," he said. "In Germany, growth forecasts are falling faster than we anticipated but it's something we bear in mind."
Asked if he would like to see Europe grow faster, the ECB chief said, "of course I would. But there's nothing monetary policy can do about that."
On the risks of a slowdown in the U.S., Duisenberg said "we do not know what form the slowdown in the U.S. will take in the next 6 or 12 months. Nor what effects it will have on Europe."
Duisenberg said the recent rise in inflation was informed by temporary factors such as euro depreciation, foot and mouth disease, and higher oil prices, adding that it will ease as these factors fade. "I expect that already next month we'll see an improvement, even if we can't rule out blips now and again in the future."
The ECB president said he was in favor of tax cuts, especially labor tax cuts, providing they were offset by increases in other taxes or spending cuts. On a more personal note, Duisenberg said "I do not think it is likely, given my age, that I will end my 8-year mandate, but the decision to resign (as ECB president) will be a completely personal decision." End