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Wed, May 14, 2003 - Page 12 News List

EU finance ministers discussing euro's rise


European finance ministers kicked off two days of talks Monday dominated by concern over lethargic growth, swelling budget deficits and a euro rising close to record highs against the dollar.

Belgian Finance Minister Didier Reynders suggested the euro's rapid ascent gave the European Central Bank scope to cut interest rates to boost the economy.

"We have more room for maneuver on the monetary side," he told reporters as he arrived for the meeting.

Markets were looking for signs the ministers would push the European Central Bank to cut interest rates following the euro's climb to its highest levels in four years.

Last week the Frankfurt-based ECB kept its main refinancing rate at an annual 2.5 percent, double the US Federal Reserve's benchmark federal funds rate of 1.25 percent.

Although the strong euro hurts European exporters, it does help keep inflation under control by taming the price of dollar-denominated oil and other imports. Lower interest rates would boost the economy by making it easier for companies to borrow, but they risk inflaming inflation by injecting more cash into the market.

"On balance a strong euro is in the interests of the euro area and the world economy," Pedro Solbes, the European Economic and Monetary Affairs Commissioner, said after a meeting of ministers from the 12-nation euro-zone.

However, Solbes warned that the effects of the euro's race to near record levels were not yet clear.

"Our concern today is to avoid excess volatility and any over-shooting," Solbes told a news conference.

Overall, Reynders said the euro's rise was good for Europe's economy.

"We want to have a strong euro," he said. "It's now more in line with economic fundamentals."

Yesterday, ministers from the 12 nations that have adopted the euro as their shared currency were to be joined by counterparts from the three EU nations outside the euro-zone -- Britain, Sweden and Denmark -- and from the 10 mainly eastern European nations scheduled to join the EU next year.

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