Brussels, 28/12/2000 (Agence Europe) - The EU Banking Federation had published, on 11 December, the results of an inquiry carried out with the members of its Economic and Monetary Affairs Committee (EMAC), announcing that:
- the one-way downward pressure on the euro had ceased;
- by the end of 2001, the European single currency should be almost at parity with the US dollar.
Facts confirmed these forecasts in the weeks that followed. It is known that the current level of the euro is around $0.93 and that some political, industrial and financial circles are beginning to express concern about the risk of the single currency rising too fast.
EMAC gathers economists representing the main European banks and banking associations. It is chaired by Dr Martin Hüfner, Vice-President of Hypo Vereinsbank AG. The end of downward pressure on the euro is attributed by EMAC to three factors: a) the recent interventions by the European Central Bank (ECB) on exchange markets, which is the proof of political support for a strong euro; b) the change in opinion towards capital flows from Europe to the United States (the acquisition of American companies has become expensive for EU companies); and c) the slowdown in the US economy. December's "FBE Letter" gave an indication of its forecasts on the euro/dollar rate of exchange: 87 cents for one euro end 2000 (forecast already surpassed in reality); 98 cents for one euro by end 2001.
The EMAC survey gives the following forecasts:
- Growth. The rate of economic growth in the EU in 2001 is expected to be around 3%. Growth will therefore remain high but a little less than in 2000 because of the impact of price rises for oil (which will continue to be felt despite the recent downward trend), slightly higher interest rates and less rapid expansion of global trade. The deceleration in growth could highlight structural weaknesses that are less visible in periods of strong growth, mainly in financial markets. This must encourage reform.
- Inflation. Headline inflation is expected to ease somewhat to under 2% due to the expected decline of oil prices in the course of the coming year.
- Monetary policy. The ECB may increase its main refinancing rate by another 25 basis points (to prevent any second-round effects of this year's oil price hike), but this mini-move by the ECB would not have a negative impact on long term interest rates, which remain stable. EMAC foresees an easing of money supply to 4.9% in 2001, which should, it believes, mean that the ECB would not increase the reference value M3 for 2001. An unchanged reference value would be a "message of stability" addressed to markets, states EMAC.