The recent fall in the euro could stimulate the economy in the euro zone but it makes a further cut in interest rates less likely, according to the Bundesbank president, Mr Hans Tietmeyer. Although he stopped short of urging central bank intervention to boost the euro against the dollar, he warned that a continued fall could undermine confidence in the new currency.
"Neither an overly weak nor an overly strong euro suits us," Mr Tietmeyer told the German business daily Handelsblatt.
"Although you cannot manage exchange rates, I believe that neither malign nor benign neglect of the exchange rate is correct."
The Bundesbank last week denied market rumours that it intervened to halt the fall in the euro, which has lost 8 per cent of its value against the dollar since the new currency was introduced on January 1st. It strengthened marginally against the US dollar yesterday, edging up above $1.09.
German unemployment figures to be announced today are expected to confirm that the number of people out of work rose again in February. The German Finance Minister, Mr Oskar Lafontaine, argues that the European Central Bank (ECB) should cut interest rates to lift Europe's biggest economy out of the doldrums.
But the ECB's vice-president, Mr Christian Noyer, insisted yesterday that decisions on interest rates must be taken on the basis of economic developments in the euro zone as a whole.
"Monetary policy decisions must be based on euro area-wide considerations, rather than national considerations. As simple as it may sound, those commentating on our monetary policy do not always appear to grasp this principle," he said.
Speaking in Hamburg, Mr Noyer said that unemployment in the euro zone is largely structural in origin and could not be reduced by the introduction of a lax monetary policy. And he made a thinly veiled criticism of a recent pay settlement in Germany which awarded metal workers an increase of 4 per cent.
"Responsible wage settlements in both the public and private sectors are necessary to reduce the unacceptably high level of unemployment in many parts of the euro area. Recent wage agreements in some parts of the euro area do not appear to be in the interest of higher unemployment," he said.
Despite the different economic circumstances in the states that belong to the euro zone, the central bankers on the ECB's Governing Council are increasingly prepared to adopt a euro zone perspective, according to Mr Tietmeyer. And he claimed that attempts by politicians such as Mr Lafontaine to influence the ECB had been counter-productive.
"Political pressure from outside may have had the effect of promoting this process," he said.
