Calls for Duisenberg to extend stay
And there were calls yesterday for European Central Bank president Wim Duisenberg to extend his stay beyond his planned retirement date in July because of controversy surrounding his successor.
Duisenberg, who will be 68 in July, is due to be succeeded by Bank of France governor Jean-Paul Trichet.
However, there are now question marks over whether Trichet will take up the post, as he is under investigation over the collapse of the State-owned Credit Lyonnais bank 10 years ago. It is alleged that Trichet helped to cover up losses at the bank, and the matter is due to come to court on June 18.
The high level of uncertainty caused by threats of an Iraqi war already has hurt growth and volatile oil prices are pushing up business and consumer costs. This weights the risks toward a slowdown, Duisenberg said in testimony before the Economic and Monetary Affairs Committee of the European Parliament.
But the ECB’s half percentage point rate cut to 2.75% last December already is tackling that weakness, he said.
Even though he downgraded the euro area growth prospects, saying the economy is unlikely to recover to its 2%t to 2.5% potential this year, he added that global tensions so cloud the picture that monetary policy decisions are difficult.
“At this juncture, it is not possible to assess how the ongoing geopolitical developments will affect the world economy and, in particular, the euro area economy,” Duisenberg said.
This dampened debt markets hopes Duisenberg would confirm their building view for a March rate cut, with prices softening at first though they were little changed on the day.
“Several remarks suggested that chances of a move in March remain below fifty-fifty,” said Jose Luis Alzola, senior economist at Salomon Smith Barney in London.
The March Euribor futures contract FEIH3, a proxy for market bets on ECB rates, held steady to yield of 2.693%, below the ECB official rates. The euro EUR= gave back some of its losses on the day to trade at $1.0743 against the dollar, down from $1.0789.
