ETUC urges the ECB to defend a lean and competitive euro exchange rate
The euro has once again appreciated strongly against the dollar in recent days. With the Federal Reserve embarking on cuts in interest rates and with the US subprime mortgage crisis slashing international investors’ appetite for dollar denominated assets, more dollar weakening is yet to come. The European Trade Union Confederation (ETUC) calls upon this week’s European Central Bank (ECB) governing council to become extremely vigilant on the euro’s exchange rate.
To prevent a too expensive euro from pushing the euro area economy back into a slump in growth and jobs, the ECB must:
Signal to exchange rate markets that excessive volatility of the euro will not be accepted,
Rule out the possibility of interest rate hikes over coming months: higher interest rates in the euro area will attract more speculative capital and push the euro exchange rate even higher,
Consider instead the option of cuts in euro area interest rates in order to support domestic demand,
Back all of this up by direct interventions on the exchange markets, if necessary.
Says Reiner Hoffman, Deputy General Secretary of the ETUC: “Following the slogan that ‘cheap money will only serve to produce new financial imbalances in future’ will lead the European economy straight into the next economic slump. Instead, the correct policy response is to provide money that is cheap enough to support growth and jobs, while at the same time re-regulating financial markets so that liquidity is used for productive investments and not for speculative bubbles.”
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