monetary policy, the Central Bank

Despite the historic flight of the euro, attributed in part to the rigor of European monetary policy, the Central Bank (ECB) held the course and is even more severe.

Thursday, March 6, the council of the ECB has decided unanimously to maintain the level of interest rates in the euro zone to 4%, giving the highest priority to the fight against inflation. At the risk of a handicap already sluggish growth and encourage the outbreak of the single currency. The euro reached $ 1.5431, Friday, March 7, the equivalent of 4.25 francs to $ 1, a level unprecedented since the 1980s.

The strong euro melted income from the monetary authority

The European Central Bank (ECB) is also affected by the strength of the euro. For the year 2007, the ECB showed a surplus of 286 million euros, compared to 1379 billion euros in 2006. This decrease of 80% is attributable mainly to the appreciation of the euro vis-à-vis the dollar, "says the monetary authority. "A provision of an equivalent amount has been established to exchange rate risks, interest rate and change in the price of gold, reducing reported net profit to exactly zero." The bulk of the ECB's income comes from the investment of its currency reserves, comprised mainly of securities denominated in dollars, and to a lesser extent yen. In 2007, the ECB has recorded unrealised losses on the order of 2.5 billion euros in the euro value of asset portfolios in these two currencies.
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"The latest information we have confirmed the existence of strong inflationary pressures in the short term," said Jean-Claude Trichet, chairman of the monetary authority. By maintaining this level the cost of money on a daily basis, the ECB hopes to curb rising prices.

The ECB fears that the soaring price of oil and food, directly affecting the consumer, leads the proliferation of wage demands as is already the case in Germany. If this spiral price / stairs are wages, inflation could get out of hand. The ECB provides a price increase of 2.9% in 2008 when the objective is to maintain it at a level equal to or less than 2%. "The ECB is what it was asked to do," explains Nordine Naam at Natixis.

While analysts expect the status quo on rates, they were surprised by the harsh speech given by Mr. Trichet. During his previous statement early February, he had stressed the threats to European growth affected by the crisis subprimes. Economists had argued that the ECB could, in a few months, lowering interest rates to relieve the economy. Thursday, Mr. Trichet himself to evoke a strong but moderate growth, estimated at between 1.3% and 2.1% in 2008. Above all, this topic was quickly swept by the President of the ECB, which has focused on inflation.

Experts are therefore less likely to consider a rate cut by the end of the first half. The contrast with the attitude of the American Federal Reserve (Fed) is clear. Across the Atlantic, the Fed concerned about the risk of recession in the United States has clearly hinted that a fall in interest rates was imminent. The market expects to see the cost of money increased from 3% to 2.25% before the end of March.

SHE "ACTED BUT APPROPRIATE"

The discrepancy between the monetary policies on both sides of the Atlantic contributes to the rise of the euro against the greenback. Following the speech by the ECB, the single currency has climbed to over $ 1.54 Friday morning. For analysts, the bride is dropped. "You can go up to 1.55, or 1.57 dollar in a few weeks, few days perhaps," predicted Mr. Naam.

The ECB is it insensitive to the outbreak of the single currency? By acquiring a portion of the increase in import prices denominated in dollars, such as oil, the strong euro has the advantage of reducing inflation, which is probably not to displease him. In addition, the ECB believes that the rise of the euro is also a consequence of the depreciation of the dollar and flexibility of the Fed policy, over which it has no control. Mr. Trichet reminds have "noted with the utmost attention to the statements of the authorities on the other side of the Atlantic, including the president, that a strong dollar is in the interests of the United States". The ECB expects a concrete gesture such statements.

For the time being, the ECB is supported in its work. Massod Ahmed, a spokesman for the International Monetary Fund (IMF), said Thursday that it had "acted appropriately". Even in France, where the orthodoxy of the ECB has often been challenged, some comments remain moderate. "The fact that there is unanimous, it is already at least a sign that nobody rising demand," noted Thursday the minister of economy, Christine Lagarde, on the airwaves BFM.

But the acceptable limit is no longer very far. The IMF estimates that the euro has reached its "high side" and that the ECB must "stand ready to respond flexibly" to impact on growth. If the euro area economy is resisting, as has been attested to the latest statistics, most economists expect in fact that the situation will deteriorate in the coming months.

As for France, maintaining interest rates at 4% had become increasingly "chimeric" the goal set by the state to achieve a growth of 2% to 2.5% this year, according to Alexander Law economist at Xerfi. "There will be no miracle," says the latter, which relies on an increase of 1.4% peak in 2008.