September 24, 2000

Rescue Attempt for the Euro Falls Short of Bankers' Hopes By EDMUND L. ANDREWS --------------------------------------------------------------------------------

RAGUE, Sept. 23  One day after the world's major central banks announced a startling rescue attempt for the euro, Europe's struggling currency, the effort showed signs today of being more modest and tentative than it first appeared.

To the disappointment of some European bankers, American officials refrained from speaking out robustly in support of a stronger euro and raised doubts about their willingness to intervene forcefully in currency markets by selling dollars or buying euros.

Central bankers also made it clear today that their intervention was over, at least for the moment. Although both European and American officials said they might well intervene again on behalf of the euro, they also cautioned that there was no reason to assume that they would do so.

"There is no strategy to continue and continue," Wim Duisenberg, president of the European Central Bank, said today after a meeting here of central bankers and financial ministers from the Group of 7 industrialized nations. "Intervention will take place when we deem it appropriate."

Mr. Duisenberg electrified financial markets on Friday by arranging and announcing a coordinated intervention supported by central banks in the United States, Japan, Britain and Canada.

By far the biggest surprise was the participation of the United States Treasury, which had been icily indifferent to the seemingly endless decline of the euro from about $1.17 against the dollar in January 1999 to 84 cents last week.

Yet after an original jolt, when the euro surged to 90 cents, it settled back to 88 cents.

The European Central Bank has offered no hint of how much money it used to buy up euros on Friday, but experts and traders say it appears to have been no more than $6 billion or $7 billion. It could be less. Dow Jones Newswires, quoting an anonymous official at the European Central Bank, said the actual amount of the intervention was in the "low single digits"  perhaps $2 billion or $3 billion.

Mr. Duisenberg said he wanted to achieve an "orderly reversal" of the euro's decline, suggesting that the European Central Bank is seeking to do more than simply prevent the euro from losing more value.

But many experts and bankers are far from sure that the rescue attempt will be enough to overcome the skepticism of institutional investors, many of whom were badly burned by buying euros that fell, rather than rose, in value.

"The market badly needs a statement from the Americans that the euro is substantially undervalued and the dollar is substantially overvalued," said Klaus Friedrich, chief economist at Dresdner Bank A.G. He added, "There has to be bucks behind it."

American officials were far more circumspect. Lawrence H. Summers, the United States Treasury Secretary, said American officials were genuinely concerned about the decline of the euro, but he reiterated that American policy was to support a "strong dollar."

In a communiqui issued by the Group of 7, the finance ministers merely repeated their "shared concern" about the "potential implications of recent movements in the euro for the world economy."

By all accounts, European finance ministers and the European Central Bank scored a surprising coup by persuading the United States Treasury to cooperate in a rescue attempt at all.

Until Friday, the Treasury had been generally opposed to calls for intervention. That view reflected a strong skepticism about the effectiveness of interventions in general as well as a belief in the benefits of a strong dollar  cheaper imports that ease inflationary pressures.

Today, American officials were ready to lend the name of the United States to a rescue attempt, but it was much less clear how much money they were ready to commit or how enthusiastic they were for the dollar to sink against the euro.

Psychology and timing may ultimately be more important than the amounts of money used by the world's central banks on the euro's behalf. After announcing the intervention, officials at the European Central Bank emphasized their interest in refuting the widely held conviction that they could not enlist American cooperation. They say they wanted to send a signal that the euro was important enough as a global currency to receive support from other big central banks.

European finance ministers expressed their general support for intervention at a meeting in Versailles this month. But Mr. Duisenberg said the discussions with American and Japanese officials did not begin until Thursday, after the euro had tumbled to its record low of 84 cents against the dollar.

He and the presidents of national banks in Europe then carried on what appear to have been a multitude of telephone conference calls with their counterparts in Tokyo, Washington and London.

American officials today likened the efforts to those in 1998 to shore up the yen. The Japanese currency did reverse its tailspin against the dollar, but the dollar has remained very strong against the euro and roughly stable against the British pound.

Deutsche Bank A.G., in an early assessment, said the European Central Bank had at least established a "solid floor" for the euro. But it cautioned that the euro would recover only if investors' shed their overwhelmingly negative opinions of the currency's prospects.

Thomas Mayer, an economist at Goldman Sachs in Frankfurt, is dubious about that prospect. "I am doubtful about their ability to make a real difference here," he said today. "They are up against very skeptical sentiments to the euro across a broad range of investors."

http://www.nytimes.com/2000/09/24/world/24EURO.html

-- Martin Thompson (mthom1927@aol.com), September 24, 2000

Answers

With half-hearted efforts like this, with no intention of continuing, what can anyone expect?

Not much.

-- Chance (fruitloops@hotmail.com), September 24, 2000.

Central Bank interventions don't work. Never have.

So, why expect much?

-- Wellesley (wellesley@freeport.net), September 24, 2000.

Does it sound to anyone like the Central Bankers' hearts are in this? It doesn't sound like it to me.

-- QMan (qman@c-zone.net), September 24, 2000.

The Silly Season is in motion. Presidential election written all over it.

It's ludicrous that the U.S. will join in the effort to prop up the Euro. Politics, all the way. If successful, Gore wins.

If the releases from the SPR drive oil prices down, Gore wins.

If the Iraq-Kuwait face-off erupts, Bush wins.

If Wall Street wises up to all the subterfuge, and tanks, Bush wins.

Flip a coin, take your chances. The election is a tossup, depending upon which of several big events predominate in October.

-- JackW (jpayne@webtv.net), September 24, 2000.

There are too many big things all coming to a head, all at the same time. My bet is that Wall Street will get weary of all this, and go South next month. In this case, I think the polls will quickly turn, and Bush will be our next president.

Sure hope I'm right.

-- Uncle Fred (dogboy45@bigfoot.com), September 24, 2000.

The EU was ready to sell treasuries and buy Euros and Gold, they are real pissed. The US bubble would burst in minutes. The US had no alternative but to participate.

-- Ishkabibble (ishman@home.com), September 24, 2000.