Europe's economy will stage a recovery this year but the timing and strength remain uncertain, European Central Bank president Wim Duisenberg said yesterday.
Speaking after the bank had decided to leave interest rates on hold, Mr Duisenberg said he expected the eurozone economy to remain as weak in the opening three months of the year as it had been during the second half of 2001.
He backed the bank's expectations of a pick-up and its decision to keep rates on hold, arguing: "There are no fundamental imbalances which would require a longer term correction process and the general positive conditions for an improvement in economic activity remain in place."
Traders reacted with dis appointment to the widely expected decision, pushing the euro back below 90 cents to the dollar and erasing most of the gains made on Wednesday, its first trading day after January 1.
"The implementation of euro hard cash was highly successful and the pricing out of the risk premium on the changeover was behind the move. Now we're back to basics," said Stacey Seltzer, currency strategist at Brown Brothers Harriman.
Mr Duisenberg warned that while the evidence pointed to a recovery "the timing and strength of this upturn remain uncertain".
The ECB came under fire last year from critics who argued that it had paid too much attention to keeping a lid on inflation and had been too slow to cut interest rates as the eurozone economy slowed, and Germany - the biggest in the 12-nation zone - slipped into recession.
Yesterday Mr Duisenberg said that although inflation numbers were likely to be erratic over the coming months, the outlook was favourable and the ECB expected the annual inflation rate to fall below 2% - the generally accepted ceiling consistent with maintaining price stability.
"It is particularly important to point to the indispensable role of continued wage moderation in fostering employment and maintaining a favourable outlook for price stability." He also warned the governments of member states of the need to maintain the budget discipline imposed by the stability and growth pact.
Guardian Unlimited © Guardian Newspapers Limited 2001
Mark Milner in Frankfurt
Tweet