Commission backs ECB's action to prop up euro

The European Commission yesterday backed the European Central Bank's intervention in the foreign exchange markets to support the euro. It stressed that the central bank had the authority to take further action without consulting EU member-states.

"The ECB has the necessary flexibility," a Commission spokesman said in Brussels.

The ECB can intervene unilaterally in the markets any time it chooses but a concerted action with other central banks, such as that involving the US Federal Reserve, the Bank of Japan and the Bank of England in September this year, must be approved by euro-zone finance ministers.

The ECB president, Mr Wim Duisenberg, was expected to brief finance ministers about the intervention last night during a meeting of the group of euro-zone finance ministers in Brussels.

The ECB had official reserve assets of €52.4 billion (£41.27 billion) at the end of September, out of which foreign currency reserves totalled €43.7 billion. Last May, EU governments gave the ECB the go-ahead to draw on the reserves held by the 11 euro-zone central banks and top up its reserve holdings by up to €50 billion when necessary.

Although the currency markets were unimpressed by yesterday's action, the intervention was praised by the International Monetary Fund's president, Mr Horst Kohler. Speaking in Vienna, he said the euro remained undervalued and that the intervention strategy confirmed the ECB's institutional maturity.

When all 15 EU finance ministers meet in Brussels today, the debate will turn from the euro to a controversial report calling for the retirement age to rise throughout the European Union.

The report, which has been prepared by an advisory panel composed of EU finance ministry and central bank economists, argues urgent action must be taken to prevent pension bills from spiralling out of control.

"Given the low average retirement age and the rising life expectancy of the elderly, reforms in existing pension systems should consider increases in the retirement age, especially in early retirement schemes, as a priority action point.

"Increases in the average retirement age have the advantage of smoothing the pension expenditure trend without reducing the living standard of the elderly," the report says.

Officials stressed that, although the finance ministers would consider the report today, no final decision would be taken until next March.

Although some countries, such as Spain and the Netherlands, could see expenditure on pensions increase massively within the next 30 years, the relative youth of Ireland's workforce suggests that the impact on the Republic would be less dramatic.

Other topics on the agenda for the meeting include an action plan to encourage risk capital, analysis of EU financial aid for smaller businesses, and fine-tuning the statistical indicators of EU structural reforms.

EU financial aid to the Balkans and a November 17th meeting in Riyadh between the world's oil producing and consuming countries are also likely to be discussed.