Euro weakness against dollar worries ECB's Duisenberg

Mr Wim Duisenberg, president of the European Central Bank (ECB), is concerned that the euro's weakness against the dollar will damage public confidence in Europe's single currency.

He said he had received many letters from members of the public, particularly from Germany, expressing fears that their savings were at risk from the currency's weakness.

Mr Duisenberg said the euro's weakness against the dollar did not matter greatly from an economic point of view, because it seemed unlikely to stoke serious inflationary pressures in the medium term.

But he added: " does give me some concern that a further movement in this direction would contribute to undermining the confidence in the euro of the public at large. [It is] Unjustified, but still it is a public perception."

The euro has fallen this week to a four-month low of less than $1.02 to the dollar, partly because of concerns about the economic problems facing Germany, the euro-zone's largest state. Discussing the ECB's decision to raise interest rates earlier this month by 0.5 percentage points to 3 per cent, Mr Duisenberg said a minority on the bank's 17-member governing council had wanted an increase of only 0.25 points. The ECB intended to start publishing its economic forecasts for the euro zone, ranging from inflation and real GDP to the 11-state area's overall public deficit.

Prof Otmar Issing, the ECB's chief economist, said yesterday that the euro was also "very much affected by new information about the strength of the US economy".

Mr Duisenberg said: "The euro has strong potential . . . I can discover no reason why the euro will weaken further." The public should judge the ECB not on the euro's exchange rate, but on whether the bank was achieving price stability in the euro zone.

He hinted that his own position as ECB president was important in maintaining confidence and so was reluctant to signal at this stage that he would step down early under a compromise agreed with the French government.

"I'm aware that it may sound a bit bragging, but I do feel that, in a large part of the euro zone, I have a great deal of confidence from the people . . . that imposes a rather heavy responsibility to keep on doing what I'm doing," he said. Partly on account of his age - he is 64 - Mr Duisenberg is still thought to be willing to leave office without serving his full term. But he has made clear he wants to go with dignity and not before the introduction of euro banknotes and coins is completed in June 2002.