Tetchy Duisenberg refuses to talk about remedial action

Before he faced the press after yesterday's meeting of the governing council of the European Central Bank (ECB), the bank's president, Mr Wim Duisenberg, turned to one of his fellow central bankers for advice. What should he say if a journalist asked whether the ECB had intervened in the financial markets to boost the value of the ailing euro?

"Tell them that we never talk about intervention unless it is necessary to do so," his colleague suggested.

Such a gnomic reply might have silenced Frankfurt's well-mannered press pack on a different occasion but, in yesterday's highly charged atmosphere, it made Mr Duisenberg seem uncharacteristically shifty.

Ever since the euro started its steep slide against the dollar, Mr Duisenberg has been insisting that the decline is nothing to worry about and that everything would soon come right. He adopted a similarly reassuring tone yesterday, predicting that the euro would prove itself in the longer term to be a strong currency based on a rigid policy of maintaining price stability.

"The guarantee we are giving to the European people is that there will be no inflation," he said.

But yesterday's mood was unforgiving. Journalists from several European countries reflected a widely-shared anxiety about the fate of the euro as they demanded to know how low Mr Duisenberg was prepared to let Europe's new currency go. Would he, for example, allow the currency to fall to a level where one euro would be worth just one dollar? "I will not join in the speculative mood that seems to be vivid around the world," he replied acidly.

The financial markets have never taken much notice of Mr Duisenberg's reassurances about the solidity of the euro and most meetings of the ECB's governing council have been followed by a further fall in the currency's value.

Last week's decision by the finance ministers of the EU to allow Italy to expand its budget deficit suggests that Europe's politicians have stopped listening to him too. Mr Duisenberg was restrained in his remarks yesterday but he warned against such weakening of the Stability and Growth Pact becoming a trend in Europe.

The ECB president's problem is that there is little he can do to influence the finance ministers, so that he must confine himself to urging budgetary restraint and calling for more flexibility in Europe's labour market. Shrouded in secrecy and out of step with the prevailing centre-left orthodoxy in European politics, the ECB is widely perceived as remote and isolated.

Mr Duisenberg responded angrily yesterday to the suggestion that the ECB was in danger of becoming increasingly irrelevant to Europe's economy and losing control of the euro.

"I think we should keep doing what we are doing. The relevance of what we are doing will become increasingly transparent when it is rewarded with results," he said.

The ECB refuses to publish its economic forecasts but Mr Duisenberg said yesterday that the bank's expectations for Europe's economy were similar to those of the European Commission. The Commission predicts that the euro area will achieve an average of more than 2 per cent growth this year and that the recovery will gain pace next year. Five leading European economic institutes this week published their expectations for Europe's economy, predicting an average of 2 per cent growth throughout the euro area. There are broad discrepancies, however, with Ireland's expected to grow by a remarkable 7 per cent while Germany's and Italy's expand by just 1.2 per cent.

Between them, Germany and Italy account for more than half the output of the euro area but Mr Duisenberg insisted yesterday that there was no danger that these two sluggish economies would prevent the rest of the euro area from recovering.

He pointed out that, with the exception of Japan, all of the stricken economies of South-East Asia "have started to crawl out of the valley" and that America's economic boom is lasting longer than anyone predicted. He claimed that the ECB's policies have ensured that the conditions in the euro area are conducive to economic growth, if only the politicians would introduce the necessary reforms.

"Now the recovery has to happen and we are convinced that it will happen," he said.