FRANKFURT (AFP) - With growth flagging in the 12-nation eurozone, pressure is building in European financial circles for central bank intervention to curb a surge in the euro against the dollar.
But intervention advocates are likely to encounter stiff resistance to any such move by the United States.
Italian Economy Minister Domenico Siniscalco on Wednesday said members of the Group of Seven industrialized nations were considering "coordinated intervention" to stabilize exchange markets after the single European currency broke through the 1.30-dollar barrier for the first time.
The G7 groups Britain, Canada, France, Germany, Italy, Japan and the United States.
The stronger euro is seen in some quarters as a threat to eurozone growth, notably as it increases the cost of eurozone exports and makes them less competitive on global markets.
But a rising euro at the same time softens the impact of higher, dollar-denominated oil prices.
French Prime Minister Jean-Pierre Raffarin spoke Wednesday of a "dollar crisis" after President Jacques Chirac urged the European Union to join the European Central Bank in "taking note of the consequences" of developments on exchange markets.
In Germany, however, reaction has been muted, although the tone could change following an official announcement Thursday that momentum in the eurozone`s largest economy had slowed to 0.1 percent in the third quarter in response to declining exports.
At the European Central Bank, president Jean-Claude Trichet earlier this week described the euro`s latest movements as "brutal" and "unwelcome." Overall since May the euro has gained six percent against the dollar.
But to be effective, a massive sale of euros on exchange markets would need to be carried out by several leading central banks acting in concert.
In the last major coordinated action, September 22, 2000, the eurozone joined Japan and the United States for the first time since 1995. At the time the goal was to stop a slide in the euro, which had plunged to 0.8230 dollars.
This time around, however, getting a US go-ahead for intervention might prove more challenging. Saddled with huge current account and trade deficits, the United States is perfectly comfortable with a weaker dollar, provided of course its decline is orderly.
More feasible would be an alliance between the ECB and Japan, where authorities have an interest in stemming the rise of the yen.
"If the euro were to climb abruptly to 1.35 dollars in the space of 10 days, the ECB could intervene, preferably with Japan, because it is likely the Federal Reserve (the US central bank) would not be interested," said Bank of America economist Holger Schmieding.
Complicating matters is the risk that tensions might arise between governments of the eurozone, anxious for action, and the much more cautious ECB -- notably as there is some confusion in the division of responsibilities.
The Maastricht Treaty on European union authorizes the ECB and central banks in the eurozone to carry out exchange rate operations, such as interventions. But it also allows governments to formulate broad guidelines for exchange rate policy.
11/11/2004 - 22:28 GMT - AFP