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Published: Tuesday October 20, 2009 MYT 8:04:00 AM

European Central Bank seeks to cool euro's soar to 14-month high


LUXEMBOURG: Seeking to cool the euro's soar toward a 14-month high, the European Central Bank and the 16 nations that use the euro said Monday that they supported a strong dollar.

The euro rose to $1.4967 in Monday trading, just shy of a 14-month high of $1.4967 hit last week, as investors expected strong earnings news from U.S. companies this week - which could see them shift funds from safe-haven dollar investments to riskier but more profitable stocks.

The weakening dollar has raised concerns in U.S. trading partners because it makes it harder for them to sell goods in the U.S., the world's biggest economy, and to Asian economies pegged to the dollar.

A weak dollar could also undermine fragile recoveries in those countries.

Jean-Claude Trichet, the eurozone's top central banker, said European officials "have a vested interest in a solid and stable currency system."

The ECB president says he and eurozone finance ministers echoed recent comments by U.S. officials on the importance of a strong dollar.

"We very much share that view expressed by the Treasury secretary and we also share the views expressed by (Federal Reserve chairman) Ben Bernanke," Trichet said.

He said Europe did not want to "put into question the seriousness" of U.S. officials' comments in favor of a strong dollar.

"We trust what they say," he said He also repeated comments he made earlier this month, saying the main message that eurozone finance ministers and the ECB have is that "excessive volatility and disorderly movements on exchange markets are bad for economic and financial stability."

The strong euro is increasingly a problem for Europe - and Germany, the world's biggest exporter.

It makes German cars and French wine more expensive for the euro's main trading partner - Britain - as well as its second major export market, the United States.

Eurozone exports to the rest of the world slid 23 percent in August from a year ago.

That was the fastest drop this year as a global recession stilled demand for many goods and services.

Eurozone nations also agreed Monday to make aggressive efforts to pay back mounting public debt when they finally withdraw economic stimulus programs that have supported growth this year.

Jean-Claude Juncker, the Luxembourg prime minister who leads regular talks between eurozone finance ministers, said they "do not think the time is right" to start an exit strategy now.

If a Nov. 3 forecast from the European Commission confirms a solid recovery this year and next year, he said "we will be withdrawing fiscal stimulus in 2011" and look at reducing budget deficits by more than 0.5 percent of gross domestic product every year.

"We want to put an end to the spiral of public indebtedness and this will require that we go beyond the 0.5 percent figure" mandated by EU budget rules, he said.

The withdrawal of stimulus programs would be gradual, he said.

The sharp economy downturn has forced most eurozone nations to toss out a rulebook limiting public debt and deficits that underpins their shared currency.

Officials have stressed that they are keen to get back on track as soon as possible.

Europe's economy is now recovering slowly as consumers start spending again and companies order more goods after a long spending freeze - helped by billions of euros (dollars) in tax breaks and extra spending by governments trying to support their economies.

Those programs and a raft of bank bailouts have loaded European countries with debt and swelling their yearly budget gaps as tax revenue sinks and they spend more on welfare payments to the growing number of unemployed.

Finance ministers from all 27 EU nations continue talks Tuesday on an exit strategy, on new financial oversight agencies to watch out for emerging risks to the economy and on how much Europe should give developing countries to tackle climate change. - AP


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