Central bankers from the world's major economies think the euro's weakness is not in line with Europe's long-term economic potential, Bank of England governor Mr Eddie George said yesterday.
The bankers from the Group of 10 and other key countries discussed the euro at their regular monthly meeting, Mr George said after chairing the talks. He added that the focus was on economic conditions in various countries.
Mr George said central bankers had focused on the strength in the economy of the 11-nation euro zone, which they deemed inconsistent with conditions in foreign exchange markets, where the euro has fallen to record lows - below $0.89.
The US economy's strength was also a factor, he said. Mr George did not think anyone could understand why markets were behaving as they were, citing prospects for European economies to grow 3 per cent or more this year and the consensus that inflation was at or near its peak.
His comments were the latest example of officials trying to talk up the euro by citing Europe's underlying economic strength.
The euro zone finance ministers' meeting in Brussels also voiced concern about the euro, but the currency slipped again in the absence of any pledge to intervene in support of it. .
Mr George gave an upbeat picture of the world economy, citing stronger growth in Europe and brighter prospects in Japan.
"I think there was no doubt that the prospects for the world economy were seen as being rather positive," Mr George said, noting that forecasts for the global economy had continued to be revised higher.
Central bankers had harboured some fears that imbalances among major industrial countries could correct abruptly, Mr George said.
But the upturn in the euro zone and the brighter picture in Japan should help to narrow these imbalances gradually, he said.
At the same time, central bankers recognised that the fast-growing US economy would probably decelerate.
"The recognition that the US economy is likely to slow down will go further [to correct imbalances], though we have not seen a lot of evidence of that in the data so far," he said, adding that US growth had remained faster than expected.
"The fact that there has been some moderate decline in asset prices, in US equity prices, particularly in new economy sectors . . . is seen as a rather positive thing."
But Mr George said the risk of a sharper decline in asset prices had not gone away and could still produce a harder landing.
Japan's self-sustaining recovery appeared to be on the right path, Mr George said. "People are expecting the first-quarter GDP to be quite strong, but I think beyond that there is a sense that business profitability and investment is improving," he added.
Japan hopes its economy will pick up this year to hit 1 per cent growth after it lapsed into recession in 1999. On other subjects, central bankers took heart from major oil producers' apparent willingness to keep oil prices more stable. Crude oil was off its recent highs around $30 a barrel and was trading in a more stable range of $22$25, Mr George noted.
The G10, actually 11 countries, comprises Belgium, Britain, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the US and Switzerland.
