16 January 2004, 14:33  Issing - ECB worried about euro's high volatility

MANNHEIM, Germany, Jan 16 - European Central Bank Chief Economist Otmar Issing said on Friday the ECB is concerned about the euro's high volatility. Issing said he was reiterating ECB President Jean-Claude Trichet's recent comments about the currency, saying that Trichet had shown "we are not indifferent about the foreign exchange rate but worried over the large volatility". Trichet has helped cap the euro's surge by saying that the currency's sharp rise, up over eight percent against the dollar in the past few months, was unwelcome and "brutal". European political leaders have made ever louder complaints that euro strength risks stifling recovery, stoking market expectations that the Group of Seven financial policymakers meeting next month will seek to restore some stability to foreign exchange markets.
Despite concerns the euro strength will hurt growth, Issing told reporters before addressing an academic symposium at the ZEW economic research institute that the euro was not to blame for Germany's poor economic performance last year. "No, it only confirms what we have known for a while that Germany has seen a long period of stagnation, 2003 is not fundamentally different (from 2002). The result has nothing to do with developments of the euro," Issing said. The euro zone's largest economy contracted in a full year for the first time in a decade, reporting on Thursday that gross domestic product fell 0.1 percent in 2003 after stagnating the year before. Export growth also fell sharply last year. On the positive side, the ECB's chief economist said that euro strength will offset some of the inflationary impact caused by higher taxes and administered prices that are expected to push up the Harmonised Index of Consumer Prices in the first quarter of this year. "At the start of 2004 (the tax measures) will again have a negative influence on inflation, not for the first time. We will see that in the next month. On the other hand there will be offsetting factors from the strong euro," he said. Already the buying power of euro zone consumers has benefited from euro strength by keeping down oil prices. Additional pricing benefits from cheaper imports also are filter through the economy with time, he said. The euro was little changed on Issing's comments, trading just above $1.25 //www..com

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