A rift between euro zone politicians and the European Central Bank over exchange rate policy was exposed yesterday when Mr Gerhard Schroder, Germany's Chancellor, praised the euro's weakness as good for German exports.
He said the euro's low exchange rate against the dollar and other currencies had been partly responsible for solid growth in exports from former communist eastern Germany.
"This should be cause for satisfaction, not for concern," he told a conference in Berlin.
Shortly after Mr Schroder's remarks, the euro fell below $0.90, not far from its record low of $0.8837 last Thursday. It recovered later to close at $0.9002.
The chancellor was speaking after Mr Jean-Claude Trichet, the Bank of France governor and a senior ECB council member, described the euro as "very undervalued" and said the ECB needed to be vigilant about inflation risks.
The clash shows that some in the 11-nation euro zone may be losing patience with the ECB's policy of regularly raising interest rates to contain price pressures caused partly by the weak euro.
Germany, an uncompromising advocate of currency strength in the D-mark era, has relied on the euro's weakness to fuel exports and economic growth this year because domestic demand has remained in the doldrums.
Coupled with high oil prices, the euro's weakness has bitten deeply into the euro zone's trade balance with the rest of the world. Figures released yesterday by Eurostat, the European Union's statistical agency, show trade surplus in the first half of the year shrank to €1.1 billion from €23.6 billion in the same period of 1999.
