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Issing-reforms will help boost euro FX rate

DONAUESCHINGEN, (Germany): European Central Bank chief economist Otmar Issing said on Thursday that euro zone governments need to implement structural reforms to enable the euro exchange rate to reflect the underlying strength of euro zone economies.

Issing said in a speech that the euro zone economic outlook in 2000 and 2001 was better than it had been at any time in the last decade, with forecasts putting the region's growth at three percent or higher.

"We are worried that this may prompt governments to delay necessary structural reform," he said. "Europe has a historically unique chance to seize this favourable economic environment to tackle necessary reforms and launch a period of lasting growth and stable prices.

"In this environment we will get a development of the euro exchange rate which mirrors the strength of the economy." Issing said the "astonishing" growth rate in the United States in 1999 combined with comparatively weak growth in the euro zone and political factors, especially in Germany, had contributed to the euro's depreciation in 1999.

But most forecasters now expected U.S. growth to slow down, as indicated by its high current account deficit and negative savings ratio.

Issing also said there was a possibility the Harmonised Index of Consumer Prices (HICP), the euro zone's measure of inflation, would slightly breach the ECP's ceiling "in one month or another" in early 2000.

That was in line with the ECB's expectation that inflation would peak following a rise on the back of oil price gains and statistical effects, Issing said.

The ECB's monetary policy could not be held responsible for the brief uptick in inflation and was geared to steering price developments next year and beyond.-Reuters.