Eurozone recovery a ‘long haul’

OUTGOING European Central Bank president Wim Duisenberg says the eurozone economy will not get into its stride before late next year and warned that currency adjustments — code for a dollar crisis — would make matters worse.

In comments that will fuel expectations that ECB interest rates will remain at their roughly 50-year low of two percent well into next year, Mr Duisenberg warned that the recovery would be a long haul.

“Only in the second half of 2004, I regret to say, at the earliest can we expect the European economy to grow again at its rate of potential output. But it will be a continuous process from now on,” he said.

The stagnant eurozone is expected to pick up speed later this year and post growth around 0.7%, accelerating gradually into 2004.

Speaking after a weekend meeting of European finance ministers and central bankers in northern Italy, Mr Duisenberg stuck to the ECB’s line that the eurozone economy was now over the worst but highlighted risks posed by currency adjustments.

“The burden of adjustment falls primarily on the euro and Europe,” he said at a news conference.

The euro has rallied about 25% against the dollar since last year and its current level, just under $1.13 last Friday, was “nothing to complain about,” said Mr Duisenberg said.

But the problem lies in the adjustment getting out of hand and turning into a full-scale dollar rout at some point in the future, which is why Europeans complain about the lopsided nature of the world balance of payments. Mr Duisenberg said the “tremendous” US current account deficit could not persist and would be discussed at the Group of Seven meeting in Dubai.