The euro has continued plummeting on foreign exchange markets, losing value against the dollar and sterling despite warnings from the European Central Bank.
The beleaguered single currency has fallen to further lifetime lows against the US currency for the third straight session, weighed down by gloomy sentiment about its near-term prospects and the euro zone's growth prospects.
The euro closed in late European trading at $0.9705 from $0.9758 on Friday and at 60.14p against sterling from 60.24p.
The euro's fall below parity prompted a statement yesterday from the euro-11 group of finance ministers meeting in Brussels in which they referred to the potential for growth in the euro zone. However, that was overshadowed by further comments from the ECB president, Mr Wim Duisenberg, which hinted that the bank is beginning to take the declining currency more seriously. Both failed to lift the currency.
Mr Duisenberg, sitting in on the discussions in Brussels, warned there was a point where the central bank might have to react. But he did not identify what that point might be.
The euro's forex value, Mr Duisenberg said, was "an important factor" in the ECB's risk assessment of inflation. "A further weakening would pose a risk to our objective of maintaining internal price stability," he told journalists.
Two choices open to Mr Duisenberg would be an interest rate increase, which some believe could be as early as this Thursday, or some intervention to try and prop up the value of the currency. There are risks attached to each strategy and either could backfire. However, it now seems clear that the ECB is at least considering both options.
The €11 finance ministers said they shared the view that growth in Europe was now "very robust" and increasingly rooted in domestic demand.
"As a consequence, the euro has the potential for appreciation, firmly based on growth and internal price stability," they said. "A strong economy goes along with a strong currency."
In a departure from previous statements, they also noted that "fiscal consolidation will be continued. Ministers share a common commitment to strengthen the structural reform process, so as to ensure a high non-inflationary level of growth in the euro area".
The Minister for Finance, Mr McCreevy, insisted that ministers were not involved in sending signals to the ECB. "The rules are quite clear - the ECB takes all the decisions," he said in Brussels. Sterling is also expected to maintain pressure on the euro as prospects for a delay in Britain's entry to the European single currency gathered force.
At the weekend, Mr Duisenberg warned it could be years before Britain's economy was ready for euro entry. Meanwhile, the Confederation of British Industry was reported yesterday as saying it would stop promoting euro entry.
The British public appears equally content to postpone entry to the euro. An ICM poll yesterday showed a record 69 per cent of voters were opposed to sterling being replaced by the euro.
With no definite timeframe for British entry into the euro, sterling would be free to float higher against the backdrop of favourable domestic growth and interest rate prospects.
--(Additional reporting by Reuters)
