27 January 2003, 09:49  ECB's Welteke Opposes Further `Rapid' Appreciation of Euro

/www.bloomberg.com/ By Hellmuth Tromm and Andreas Scholz
Davos, Switzerland, (Bloomberg) -- European Central Bank council member Ernst Welteke said he opposes a further ``rapid'' rise of the euro, suggesting it would hamper the European economy's recovery from the slowest growth in nine years.
Europe's 12-nation common currency rose for a record ninth day against the dollar Friday, reaching a three-year high of $1.0826 in New York trading. In the past two months, the euro has strengthened 9 percent.
``So far the rise and the level is not a reason for concern,'' Welteke, who's also head of the German central bank, said in an interview at the World Economic Forum. ``The rapid rise must certainly not continue ad infinitum.''
Welteke's concern contrasts with ECB President Wim Duisenberg's statement on Jan. 9 -- when the euro bought $1.05 -- that the ``welcome'' appreciation wasn't eroding the price competitiveness of European exporters.
Economic growth slid to 0.8 percent last year, the weakest pace since the 1993 recession, the European Union estimates. The economy may contract in the first quarter for only the second time in a decade, the EU predicts.
Subdued inflation and wage costs mean the ``chances for a slight increase in economic activity are in place,'' Welteke said. Echoing other policymakers in Davos, he said the main risk is a war in Iraq which ``would have far-reaching consequences.''
Exporters
Manufacturers such as Siemens AG, Germany's largest electronics and engineering company, have said the euro's gains are starting to erode export orders. Exports account for about a third of gross domestic product in Germany, Europe's largest economy.
Duisenberg said on Jan. 20 -- when it bought $1.07 -- that the euro's rise hadn't negated the impact of last month's half- point cut in interest rates to 2.75 percent. On Jan. 23 ECB council member Yves Mersch called the rise ``warranted by economic fundamentals.''
The euro began life at $1.1668 on Jan. 1, 1999 and peaked at $1.1899 three days later. Its low point came at 82.31 cents on Oct. 26, 2000.
German government officials interviewed in Davos hailed the euro's advance, counting on the currency's increased buying power to spur consumption by reducing the costs of imports and bringing down inflation.
``We have every reason to be happy about this positive development,'' Deputy Economics Minister Alfred Tacke said yesterday. Deputy Finance Minister Caio Koch-Weser said Friday that ``I don't see it as a problem yet.''
The German BDI association of industry that represents 107,000 companies last week said exports will suffer if the euro's rise continues.

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