Euro reflects stronger fundamentals: ECB’s Stark

FRANKFURT - The euro’s strength reflects stronger economic fundamentals in the euro zone and is helping to dampen import price inflation, European Central Bank Executive Board member Juergen Stark said in remarks released on Wednesday.

By (Reuters)

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Published: Wed 11 Jul 2007, 4:52 PM

Last updated: Sat 4 Apr 2015, 10:19 PM

The euro is at record highs against the dollar EUR and yen EURJPY, but Stark said the currency was not out of line with values reached by the national currencies that preceded it.

‘You shouldn’t over-interpret daily values,’ he told reporters at a Frankfurt journalists’ club late on Tuesday, in comments embargoed until Wednesday.

‘The current exchange rate is not beyond any comprehension. We’re quite within the ranges of predecessor currencies -- there’s always been some up and down,’ he said.

Stark said the strong euro had positive effects, such as reducing the cost of commodity and energy imports priced in dollars, and largely reflected recently improved economic performance in the euro zone.

‘The euro exchange rate reflects the strength of economic developments in Europe. The fundamental data has strengthened,’ he said.

Moreover, the impact of exchange rate moves on inflation and growth was less than before the introduction of the euro, Stark said. Much international trade took place within the euro zone or with other European countries whose currencies moved more in line with the euro than the dollar and yen.

The ECB estimated that a 5 percent rise in the effective exchange rate EUREERECBF -- which encompasses the currencies of the ECB’s main trading partners -- reduced both growth and inflation by 0.1 percentage points over 2-3 years, he said.

‘The appreciation of the euro has a positive effect. Imports that are priced in dollars, in particular energy raw materials, become cheaper,’ he said.

The euro’s strength has concerned politicians, especially in France, where aircraft manufacturer EADS finds it harder to compete against its US rival Boeing.

At the weekend the chief executive of Volkswagen, the world’s fourth-largest carmaker, said he would consider building another North American factory if the dollar stayed weak.

But Reinhard Kudiss, a currency strategist for Germany’s BDI industrial association, said in an interview published on Wednesday that the strong euro was no problem for most German firms as they had improved productivity.

Stark has repeatedly said that better productivity, not a greater ECB focus on the level of the euro, is the solution to companies’ potential difficulties with a stronger currency.

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