ECB chiefs give full backing to embattled euro

Top European Central Bank officials threw their weight behind the euro yesterday predicting a brighter future for the embattled currency and stressing the euro-zone economy remained healthy.

ECB president Mr Wim Duisenberg said he believed the euro's weakness was over and repeated the ECB's mantra that the single currency had a strong potential to rise.

"I believe the depreciation of the euro is over," he said in an interview with Italy's La Repubblica newspaper. And Mr Christian Noyer, vice-president of the Bank, struck a similar chord speaking to reporters in Stockholm, saying he was confident Europe would grow faster than the United States this year and that the current euro-dollar exchange rate could not be sustained.

But economists in Europe remain sceptical. Out of 30 economists polled by the weekly investors magazine Borse Online, nearly half said they expected the euro to start falling again in value soon, maybe even lower than the record low point of $0.82 seen last October.

The euro climbed only briefly after Mr Duisenberg's comments before falling back to close down at .8595 on the day. Later in the day, the European Commission said budgetary policy in economic and monetary union was facing its first real test as it expressed fresh concern on prospects for euro area growth.

Citing "mounting downside risks" to Europe's economy, the Commission said countries with healthy public finances should be prepared to let budget deficits rise, if needed, to cushion the impact of slower foreign and consumer demand.

But the European Union executive also repeated a warning that Germany, France, Italy and Portugal, which have still not reached "safe" budgetary positions determined by the EU under the bloc's Stability and Growth Pact, "have less room for manoeuvre in the face of the current slowdown".

"When we say that the European currency has strong potential to appreciate, this is not an empty phrase." Mr Duisenberg sought to play down such concerns when he insisted the euro zone was unlikely to slip into recession and that the recent inflationary surge was fuelled by temporary factors which would abate later this year.

The ECB chief suggested that some of the euro's problems may be solved, at least in part, when euro coins and banknotes finally find their way into people's pockets in January.