Saturday, September 23, 2000
Banks try to boost sickly euro
Enquirer wire services
BERLIN — The guardians of the world's most powerful currencies teamed up Friday in a surprise move to help the beleaguered euro.
The move, announced as financial ministers from the Group of Seven industrialized nations arrived in Prague in advance of a meeting today, was the first time in two years that central banks staged a coordinated currency intervention — and the first time ever that they had done so in support of a European currency.
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WHO USES IT?
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Nations that have adopted the euro: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain.
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The intervention by European Central Bank, the U.S. Federal Reserve and the Bank of Japan had the desired effect, pushing the currency briefly up more than 5 percent.
But as the euro fell off its quick gains, experts said the lasting effects of the unprecedented move remained very much in question.
Still, the fact that the intervention was done together by the world's three most-powerful central banks, along with numerous others, gives it a better chance for long-term success, analysts said. Such interventions to boost a currency can be effective only when done in a coordinated fashion, said Petra Koehler of Dresdner Bank.
“The timing and fact the Fed itself got involved really does lend credibility,” said Jeremy Hawkins, chief economist for Europe at the Bank of America in London.
Robert Blake, a New York-based senior economist for NatWest Bank, said joint interventions are generally more successful than unilateral intenventions. He pointed to several instances by the Bank of Japan in recent years to keep the yen from strengthening, efforts that have met with limited success.
European finance officials said the cooperative move also reinforced their repeated statements that the euro's weakness is unfounded.
“The market was under-rating the European situation,” said Hans Tietmeyer, former president of the German Bundesbank.
The move was the first time the ECB stepped in on behalf of the euro, which was launched by 11 countries in January 1999.
The euro, which has lost 27 percent of its value against the dollar since it was launched, has fallen to a succession of new lows this week, dropping to 84.40 cents on Wednesday.
Just this week, U.S. Treasury Secretary Lawrence Summers hinted at a reluctance to join in an intervention.
He said Friday, after the intervention, that position hadn't changed, and that the Fed wouldn't have intervened without signs favoring potential European growth.
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