Duisenberg upbeat despite euro price hikes

Date: 04/07/02

By Martin Banks

THE successful introduction of the euro has laid the foundations for an 'ever closer' Union, European Central Bank President Wim Duisenberg told MEPs this week.

Addressing the Parliament's plenary session in Strasbourg, the ECB chief said the single currency represented a 'milestone' in Europe's history.

'With a single currency, our citizens now have a common symbol of European identity which they use in their daily lives.

'Indeed, the euro has created the foundations that may stimulate further integration in both the political, economic and financial fields,' he said.

'In this sense, the euro - our money - can provide a new and more solid base on which to build an ever closer union.'

In a wide-ranging speech, Duisenberg admitted that concern had been voiced about the impact of the cash changeover on inflation in eurozone countries.

He also conceded that retailers in some countries may have cashed in on the euro's launch by increasing prices.

'The increase in annual consumer price inflation in the eurozone from 2 in December 2001 to 2.7 in January 2002 has unfortunately been associated in many people's minds with the cash changeover,' he said.

'In reality, other factors contributed to this increase, such as the rise in vegetable prices and higher tobacco taxes in several EU member states.'

He added: 'But it has to be recognised that in some sectors with a low level of competition, some upward price adjustments might have occurred in connection with the changeover.

'But there were also price reductions in the euro area associated with the changeover and statistical evidence has so far confirmed that the effect on overall price levels has been contained.'

Turning to the current economic situation, Duisenberg told members that conditions had gradually changed.

'The impact of the 11 September terrorist attacks on economic confidence has gradually faded away and economic stability has stabilised,' he said, adding: 'While the strength of the ongoing recovery is still subject to uncertainty, the most likely scenario is for economic activity to gradually accelerate and reach levels in line with trend potential growth later this year.'

But he warned that 'moderate' wage demands were vital in achieving growth. 'It is crucial that wage moderation prevails in the future and, in this respect, we are concerned about recent trends in wages.

'Wage moderation is a key factor in favouring the expansion of employment and in helping to create the conditions for a sustainable increase in the growth of the eurozone economy,' Duisenberg added.

The successful introduction of the euro has laid the foundations for an 'ever closer' Union, European Central Bank President Wim Duisenberg has told MEPs.