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European Central Bank Acts to Push Up Value of Rising Euro


PARIS — With the euro finally on the rise as the U.S. economic juggernaut downshifts, the European Central Bank on Friday went shopping on world markets, spending dollars to buy euros in an effort to push the value of its long-battered, long-mocked currency even higher.

Over the last week, the euro has rallied from its Oct. 26 low of 82.3 cents. News of the ECB's intervention made it spike Friday to nearly 88 cents. By the end of trading in New York, the euro was at 86.7 cents, up from Thursday's close of 86 cents.

"I welcome the ECB's intervention, which I hope contributes to the restoration of more sustainable exchange-rate relationships," said Eddie George, governor of the Bank of England, which is outside the euro zone.

At its Frankfurt, Germany, headquarters, ECB officials told reporters that the bank had also acted from worries that the shrinking euro would cause consumer prices to rise. Many commodities, including gasoline and other oil derivatives, are bought on the world markets in dollars, and cheaper euros mean they cost more for consumers in euro zone countries. That cycle fuels inflation, and the ECB's No. 1 mandate is to hold inflation to 2% or less annually.

Although Western Europe's common currency has shed about a quarter of its value since its inception 22 months ago, it has regained some of the lost ground in the last week, in large part because of the announcement that the U.S. economy is slowing.

Last week, the Commerce Department said the growth rate had fallen to 2.7% in the third quarter, less than half the torrid 5.6% posted in the previous quarter.

The 11 European Union countries that make up the euro zone haven't yet announced their growth rates for the third quarter, but the annualized 3.7% pace in the quarter ending in June may mean that Europe has caught up with, or even surpassed, the United States.

"Now that the European economy is growing faster than that of the United States, the markets should recognize that the euro-dollar rate is no longer justified," Hans Eichel, Germany's finance minister, declared this week.

A faster-growing European economy makes the continent a more attractive place to invest in, which in turn pumps up the euro. Until now, the blistering rate of U.S. growth, powered in large part by the Internet-energized "new economy," has made America the destination of about two-thirds of all funds leaving the world's capital-exporting countries, according to a study by specialists at Lehman Bros. quoted in Friday's editions of the Financial Times of London.

That has been brutal for the euro, dragging down its value. According to the ECB, in the first eight months of 2000, net investment outflows from the countries of "Euroland"--Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain--totaled almost $50 billion.

On Sept. 22, the ECB intervened with the U.S. Federal Reserve, Bank of England and Bank of Japan in an internationally orchestrated rescue operation for the euro. On Friday, the ECB went it alone, but a spokesman said the Fed and other leading central banks of the world had been "informed" beforehand. There was no disclosure of how many euros the ECB bought.

Analysts had been skeptical that the United States would throw its weight around again in the global marketplace on behalf of a foreign currency with Tuesday's presidential election so close.

Some European leaders have been critical of Willem F. "Wim" Duisenberg, the often loose-lipped Dutchman who is the ECB's first president. On Thursday, Duisenberg kept quiet when asked by reporters in Frankfurt if the euro's rise of late was because of covert action by the bank. But like many European political and financial leaders, he maintained that the currency is underappreciated on global exchanges.

"The developments of the euro exchange rate over the last two weeks have been gratifying, correcting somewhat--but not totally, of course--the strong undervaluation of the euro," Duisenberg said.

Laurent Fabius, France's finance minister, has claimed that a fair value for the euro is as much as 20% over what it has been trading for on world markets.

The euro now functions as a sort of tallying unit for noncash transactions such as the buying and selling of government bonds. In 2002, euro coins and bank notes are scheduled to come into circulation and will replace the familiar national currencies of Euroland such as the German mark and French franc.

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