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Any action on euro needn’t wait for G7

ROME - If Europe wanted to act to weaken the strong euro it need not wait for the G-7 meetings later this month to do so, European Central Bank board member Lorenzo Bini Smaghi said.

Bini Smaghi, in an interview with La Stampa newspaper published on Sunday, did not indicate a preference on the exchange rate and warned policymakers against taking their debate about the euro into the public—saying such comments can mislead markets.

‘A euro exchange rate policy exists, and an institutional mechanism exists ready to act. But to be efficient, the impact on markets must be quick, sudden; and there is not necessarily the need to wait until the G-7 meetings to move,’ he said.

Bini Smaghi had been asked whether the euro would hit 1.50 per dollar.

The euro has scaled record highs against the dollar in recent weeks and markets are focused on the G-7 meeting in Washington later this month to see if it will produce new wording on foreign exchange policy aimed at euro depreciation.

Bini Smaghi, without revealing his policy preference, noted some advantages of having a strong currency—including importing less inflation. He also played down the overall impact on European exports, saying the world economy remained strong.

‘If we sell less to the U.S., it’s above all because the economy there is slowing. Businesses should direct themselves toward those countries that are growing more,’ Bini Smaghi said.

‘Altogether, European exports continue to increase.’

Bini Smaghi said Europe should try to avoid the mistakes of the past when dealing with exchange rate issues. He pointed to conflicting statements from euro area finance ministers on the weakness of the yen against the euro in the lead-up to the Essen Group of Seven meeting in February.

‘In the preceding weeks, conflicting statements created an enormous expectation. After the expectations were not fulfilled, the market reaction went in the opposite direction,’ he said.