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Bundesbank officials warn euro needs more support

FRANKFURT: Two Bundesbank council members warned of negative consequences from the euro's recent slump against the U.S. dollar and said European officials had to do more to help the faltering currency.

"Simply to say that the euro has potential to appreciate is not enough," Bundesbank council member Franz-Christoph Zeitler told German paper Die Welt am Sonntag in an interview to be published on Sunday.

"(It has to be made clear) that a strong euro is in Europe's interest," he added.

The euro hit a number of record lows against the U.S. dollar last week, falling as far as $0.9736 in U.S. trade on Friday, breaching the psychologically important one dollar/two mark barrier.

Several European officials chimed in with attempts at verbal support, repeating their often-heard mantra that the euro had potential to appreciate as the euro zone's economy was set improve significantly this year.

Zeitler on Saturday said a drop in the euro's external value hurt the currency's public reputation, but intervention in the foreign exchange markets to support the currency would not be appropriate as it "would be a sign of weakness."

Zeitler is regional central banker in the state of Bavaria and has a seat on the Bundesbank's council, but is not member of the European Central Bank's policy making council.

Fellow Bundesbank council member Klaus-Dieter Kuehbacher, president of the regional central bank in Berlin and Brandenburg, said the recent weakness in the euro was in part "homemade."

"The ECB, the European Commission and the heads of state in the euro zone countries have to paint a clear picture," Kuehbacher told Die Welt am Sonntag, in an interview to be published alongside Zeitler's on Sunday.

Officials do not communicate clearly enough that Europe's big countries can boast positive economic data, Kuehbacher said.

Zeitler added the recent slump in the euro's external value against the dollar was due to markets' impression that economic growth in the euro area was lagging that of the United States.

It is noticeable that European growth is mainly driven by exports, rather than by domestic demand, Zeitler said.

Differing current interest rate levels and divergent rate expectations in Europe and the United States also depressed the euro, he said.

He noted that the weak euro was giving European exporters a shot in the arm, but warned that the effect was only short-lived and was also deceptive, as it sent up a smoke screen of strong economic performance that had no real fundamental basis.-Reuters