Euro's rising strength poses threat to EU economy
SHARON SPITERI
18.12.2003 @ 08:38 CET
The euro reached new highs yesterday against the dollar, raising concerns that the rapid rise in the EU’s single currency could threaten the euro zone recovery.
The dollar finished the day at more than $1.24 to the euro for the first time, after a report citing unnamed European Central Bank (ECB) sources said there would be no intervention until the euro hits $1.35.
The euro has risen by nearly 19 percent against the dollar this year and hit record highs in 12 of the past 14 trading sessions.
However experts are warning that this rapid strengthening of the euro could pose risks for the European economy.
A member of the ECB governing council, Dutch Central Bank President Nout Wellink said in an interview with the Financial Times that a "too rapid strengthening" of the euro could threaten the fragile recovery underway in the euro zone.
He also warned that a "sudden movement" in foreign exchange markets could dent euro zone growth prospects.
According to Mr Wellink, the threat to the eurozone’s economy is not the rising euro in itself. "The main threat is that it [euro appreciation] goes too fast for economic agents [companies, governments and unions] . . . to react in an adequate way".
One of the main worries inherent in the rising euro exchange rate is that it makes exports more expensive - which can harm growth in export-driven economies such as Germany.
