Doubts about the management of the euro were reignited yesterday after comments by Mr Wim Duisenberg, president of the European Central Bank, sent the ailing currency near to an all-time low.
The further decline in the euro's value was bad news for Irish inflation in advance of new consumer price index figures due to be released by the Central Statistics Office today.
In an interview with the London Times published yesterday, Mr Duisenberg took the unusual step of openly discussing ECB intervention strategy. He dampened hopes of imminent intervention to support the euro by acknowledging that the timing of action by the Group of Seven central banks last month had been influenced by the US presidential elections.
"We of course took into account that the preparedness to come to such dramatic action for the Americans might be more difficult the closer it was to the elections," he said.
The statement surprised currency traders, and was taken to mean that there was unlikely to be further concerted intervention ahead of the presidential vote early next month.
Mr Duisenberg also suggested that intervention would be inappropriate to support the euro if it was undermined by the turmoil in the Middle East. He revealed that he failed to persuade Mr Larry Summers, the US Treasury Secretary, to give more vocal support to the euro.
In an apparent criticism of Mr Duisenberg, Mr Ernst Welteke, president of the Bundesbank, said yesterday: "Interventions . . . are only ever effective when one doesn't talk about them."
ECB officials moved quickly to downplay Mr Duisenberg's remarks. They said he had addressed a hypothetical question and it did not represent a change in the ECB's official stance that intervention was a tool always at its disposal.
However, analysts said Mr Duisenberg's comments were a strategic error. Many of the speculative traders who had bought the euro after the intervention have been throwing in the towel, said Mr Jim O'Neill, head of currency research at Goldman Sachs.
"Mr Duisenberg has broken the cardinal rule of foreign exchange intervention: never discuss your strategy in public. His comments are stunningly incompetent." Mr Duisenberg's remarks continued a pattern of comments on the euro by European policymakers that have sown confusion in financial markets.
Euro supporters had hoped that intervention by the world's leading central banks would halt the currency's long-term decline to more than 25 per cent below its starting-point against the dollar in 1999.
The action on September 22nd helped win the euro three weeks of stability at 87 to 88 cents against the US dollar. But yesterday it looked to be resuming its slide, falling to $0.8458, close to its low of $0.844, before recovering to $0.85 in late trading in the US.
In the meantime, finance ministers from the 11-nation euro zone sought to put on a brave face last night as they began their monthly meeting in Luxembourg. French Finance Minister Mr Laurent Fabius sought to soften the impact, declining to say at a post-meeting press conference what the "equilibrium value" of the euro should be.
"We always resist setting the value that we expect to the nearest cent," said Mr Fabius, whose country holds the current EU presidency.
Mr Fabius appeared at the press conference with the European Commissioner for economic and monetary affairs, Mr Pedro Solbes, but conspicuously without Mr Duisenberg.
