–Adds Comments On Fx, Global Imbalances, ECB Policy, Germany GDP Growth

WASHINGTON (MNI) – The euro’s recent appreciation is not at all
conducive to Europe’s economic recovery, European Central Bank Governing
Council member Ewald Nowotny said Friday.

Speaking to journalists on the margins of the Annual Meeting of the
IMF and World Bank, the head of Austria’s central bank noted that in the
context of ongoing U.S. economic weakness, “we are seeing a climb of the
euro versus the dollar.”

This strengthening of the common currency, he continued, one can’t
“see positively for Europe. This climb is certainly not helpful for the
recovery.”

Although the ECB has no exchange rate goal, abrupt moves on forex
markets are neither desirable nor positive, he said. Nowotny turned in
this context to the subject of speculation and hedge funds, which he
called “very problematic.”

On Thursday, ECB President Jean-Claude Trichet said that excessive
volatility in foreign exchange markets could have “adverse consequences”
for economic growth and stability, but he stopped short of actually
saying that the current situation in foreign exchange markets was
excessively volatile.

Nowotny did take that extra step, saying that the past half year
has been a period of excessive foreign exchange volatility. Nor is the
volatility confined to the euro he noted, citing the sharp moves earlier
this year of the Swiss franc.

The Austrian central bank chief said he was “allergic” to the term
“currency war,” which has made the rounds of financial media and other
institutions since it was first used late last month by the Brazilian
finance minister. But he did say that unilateral foreign exchange
policies followed by some countries are a problem. He also noted that
sharp short-term currency fluctuations are a problem for companies
operating in the international arena.

The bottom line, Nowotny said, is that exchange rate moves are a
symptom of the underlying developments. That includes the massive
current account deficit of the United States and its mirror image, the
huge surpluses in China and some other Asian countries. In the long
term, these imbalances are “extremely problematic,” Nowotny said.

But despite recent developments, he said, “the dollar is of course
the most important world currency and will remain so for the foreseeable
future.”

The increasingly bleak economic outlook in the U.S. is associated
with very weak inflation that could justify worries about deflation, he
said.

“In Europe these concerns do not exist,” he said. Against that
backdrop, the ECB continues to look for ways to unwind the special
measures taken to address the crisis, he said.

He said the ECB would base its policy on the Eurozone as whole, not
on developments in individual member states.

He predicted that Germany could post GDP growth of up to 4% this
year.

–Frankfurt bureau tel.: +49-69 720142. Email: frankfurt@marketnews.com

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