Firmer euro in spotlight as ECB meets

FRANKFURT: All eyes are on European Central Bank chief Mario Draghi Thursday to see what he has to say about the strengthening euro, which France believes could choke off recovery in the single currency area before it really starts.

The ECB's decision-making governing council is not expected to announce any new policy moves -- either in terms of interest rates or anti-crisis measures -- at its regular monthly meeting here.

With ECB interest rates currently at a record low of 0.75 percent and its latest anti-crisis bazooka -- the so-called OMT -- ready and primed for action, central bank chief Mario Draghi believes the bank has already done its utmost and it is up to governments to resolve the long-running crisis, economists said.

But with evidence tentatively suggesting that the eurozone could finally be emerging from its three-year-old sovereign debt crisis, the recent rise in the euro to its highest level against the dollar in well over a year could become the focus of attention, analysts said.

France, for one, has raised the alarm about the negative effects the rising euro could have on the tender green shoots of the eurozone's recovery.

The euro has strengthened sharply in the past few months, hitting $1.3711 last Friday, a level last seen in mid-November 2011.

A strong euro could hurt exports, a key growth driver.

On Tuesday, French President Francois Hollande insisted the euro's value cannot be left to the whims of the market.

Speaking to European Parliament in Strasbourg, Hollande said "a single currency zone must have a foreign exchange policy otherwise it will see an exchange rate imposed on it (by the markets) which is out of line with its real competitive position."

French Finance Minister Pierre Moscovici said the issue should be discussed among eurozone finance ministers and the group of 20 leading economies.

But Berlin sees no cause for alarm.

"The German government is of the conviction that the euro, historically speaking, is currently not overvalued," said government spokesman Steffen Seibert.

"What we're currently seeing is a rise in the value of the euro which is a counter-reaction to the massive depreciation in the wake of the eurozone crisis," Seibert said.

The latest rise in the euro, to just over $1.35 on Wednesday, "shows that financial markets' confidence in the euro is returning. That's not a bad thing," he continued.

For Germany exchange rate policy "is not an appropriate tool to boost competitiveness," Seibert said.

ECB watchers said Draghi would likely remain cautious when he is asked about the euro exchange at his regular post-meeting news conference.

The ECB "has in the past been very cautious to comment on currency movements, only saying that the exchange rate is one indicator amongst many that they watch. We would expect comments of a similar nature (today)," said Marie Diron of Ernst & Young Eurozone Forecast.

The rise in the euro "will not help the eurozone economy, in particular in peripheral countries where hard work is underway to redress competitiveness. However, the current levels are not unprecedented and in themselves will not move the economy back in recession," she said.

Berenberg Bank economist Christian Schulz agreed that the euro has "not reached worrying levels yet."

Carsten Brzeski at ING Belgium said a further rise in the euro could persuade the ECB to cut its key interest rates.

"Past experience has shown that the ECB hardly reacts to exchange rate movements. They know that reversing trends against market sentiment is hardly possible. However, if the current trend continues and the euro further weakens the economic outlook, the door for a rate cut could be opened again," he said.