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European Officials Say They Are Comfortable With Euro's Gains

By Sheyam Ghieth and Meera Louis

April 14 (Bloomberg) -- European officials said that their economies can withstand the effects of the advancing euro and that a strong currency brings benefits.

``A strong euro is in the interest of Europe,' Dutch Central Bank Governor Nout Wellink said in an interview in Washington today. ``Domestic demand in Europe is strong. We don't have a problem at this moment with the euro.'

The comments may stoke gains in the euro, which yesterday climbed to within 1 percent of a record high against the dollar. The currency has gained as the European Central Bank continues raising interest rates, narrowing a gap with the Federal Reserve, which has left borrowing costs unchanged since August.

The euro-region economy is showing few signs of cooling from the fastest pace since 2000 last year. Exports continue to rise even after a 12 percent appreciation of the euro against the dollar in the past year. The International Monetary Fund last week lifted its forecast for European growth and predicted this year will be the first since 2001 the euro area outpaces the U.S.

``We are optimistic' about European exports and growth prospects, Belgian Finance Minister Didier Reynders told reporters today on the sidelines of the spring International Monetary Fund and World Bank meetings in Washington. ``Europe's capacity to resist external shocks is also due to a strong euro.'

Euro's Benefits

A stronger currency may reduce the cost of imported goods, complementing the ECB's fight against inflation. The ECB has lifted its benchmark rate 1.75 percentage points since December 2005, to 3.75 percent. Gains in the euro may also insulate the region from increases in the price of oil, which is denominated in U.S. dollars.

Compared with the currencies of the euro-region's largest trading partners, the euro has climbed this year to within about 1 percent of its all-time high. The ECB's trade-weighted euro index closed yesterday at 107.24, compared with the record of 108.50 touched on Dec. 30, 2004. The euro was also at $1.3530.

``Until now, it does not' have an impact on exports, German Deputy Finance Minister Thomas Mirow told reporters today, referring to the euro's gains. He said yesterday that the Group of Seven finance ministers and central bank governors didn't address the euro's strength in their meeting in Washington.

Still, French Minister Thierry Breton said that the euro's appreciation must be monitored.

``The euro is strong but stable which is a logical consequence of the situation,' Breton said yesterday. ``In the current environment, vigilance on exchange rates seems needed.'

Breton noted instead that ``a strong dollar is in the interest of the U.S.'

The euro region will grow 2.3 percent in 2007, beating the 2.2 percent predicted for the U.S., the IMF said April 11.

``In the euro zone, we're happy to note that growth in 2006 was at a six-year high,' Luxembourg Finance Minister Jean-Claude Juncker said today in Washington. ``Chances are good that in 2007 and 2008 we'll stay on this path of economic expansion.'

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