FRANKFURT (MNI) – Despite its recent slide against the dollar, the
euro is and will remain a strong currency, European Central Bank
Governing Council member Christian Noyer said Wednesday.

The central bank’s duty to protect price stability ensures the
purchasing power of the common currency, the head of the Bank of France
told German business daily Handelsblatt.

Noyer reiterated that the Governing Council never comments on
short-term changes in exchange rates. Still, he remarked that the
current euro/dollar level matches the approximate average of the last
ten years.

Thus, the current exchange rate “is in no way an extraordinary
level,” he assessed.

“The euro is and remains a strong currency,” Noyer stressed. “Its
purchasing power is optimally protected, simply because the ECB has the
duty to preserve price stability.”

“And, we will also continue to do that,” he assured. “That is
decisive and the euro will remain a strong and stable currency because
of this reason.”

Pressed on the common currency’s slide, Noyer insisted that “we
never comment on short-term exchange-rate movements…The current
exchange rate of the euro versus the dollar approximately matches the
average of the last ten years,”

“We are seeing the return to growth,” emerging from Germany and
France since the middle of last year, Noyer observed. And “it will
gradually be stronger.”

“I see no reason why growth should not continue,” if the confidence
of households and businesses can be restored and maintained, Noyer said.

Even though governments are on a good path to reform, it will take
a long time for normality to return.

“If one wants to take appropriate measures to clean up public
finances and improve competitive positions, then that takes time to
reach all these goals, probably many years,” he said.

“It will take a long time to fully repair confidence,” Noyer
predicted, adding that this is “part of the explanation of the capital
flows that have consequences for the development of the exchange rate.”

“But, I think the appropriate measures have been taken,” he
remarked. “The ECB has taken strong decisions to restore the
effectiveness of monetary policy. The foundation has thus been created.”

Moreover, “I see no reason why confidence should not be fully
rebuilt [and] why financial markets should not return to calm and
normality.”

Even though markets have more faith in certain countries, like
Germany and France, to tackle the challenge of reducing debt while
maintaining growth, “all countries must make efforts,” he said. “We have
to examine our situation and take the necessary measures.”

Asked to comment on the importance of reforming the EU’s Stability
and Growth Pact, Noyer said that the Pact is of “decisive importance.”
Furthermore, he urged governments to find a way to “seriously implement”
a Pact that is applied strictly with real “peer pressure.”

“What is even more important is that debt levels must be reduced
rapidly,” he said.

Pressed as to how such change can be realized, Noyer reminded that
the current crisis is “a fantastic occasion to promote economic
governance in the Eurozone,” he said. “I think this chance should be
taken.”

“The ECB has always supported this, and we are not surprised that
it has now really become imperative,” he observed.

The need for more economic governance is the shared view of both
France and Germany, Noyer insisted, noting that the recent open letter
from Germany’s Chancellor Angela Merkel and France’s President Nicolas
Sarkozy call for such a reform. “It must be implemented, with precise
rules, precise goals and precise leadership,” Noyer urged.

Speaking about the role of rating agencies in the financial sector,
Noyer commented that the Bank of France and the Bundesbank use their own
ratings whenever a bank uses a commercial loan as collateral in a
refinancing operation.

Queried if central banks could eventually compete with rating
agencies, Noyer demured: “I believe that would not be a good idea.” But
he noted that there are other ways for competition on the rating market
to be strengthened.

In France, for example, financial insurers such as Euler-Hermes and
Coface rate the quality of loans, he reminded. “They could establish out
their own ratings,” he said, adding that they have the “knowledge, the
appropriate experience and have to pay if their ratings are wrong.”

Perhaps with a hint of economic patriotism, Noyer said that these
companies could “easily conquer the rating market.”

–Frankfurt bureau; +49-69-720142; tbuell@marketnews.com

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