The euro reacted badly to the news of a larger than expected interest cut from Sweden, and to the increased talk the rate cut triggered that the European Central Bank might follow suit and cut eurozone interest rates soon.

Bad consumer purchasing data from France added to the speculation.

Despite the insistence of ECB officials that there is no consideration being made to change interest rates in either direction and that the current rate of 2 percent is “appropriate”, the euro fell in relation to the US dollar, sterling and the yen.

The shared currency fell 0.1 percent to $1.2137 in relation to the dollar, lost 0.2 percent to sterling, to £0.6640, and declined 0.9 percent to ¥131.70 against the yen.

Tags: European Stocks & Shares News, Interest Rates News, ECB: European Central Bank News, European Economy News by Brian Turner
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The euro continued to decline against other currencies on Friday, falling 0.8 percent for the week to $1.2130 in relation to the US dollar, a nine-month low.

It also declined 0.1 percent for the week to a one-year low of ¥131.51 against the yen. The euro also fell 0.8 percent on the week in relation to sterling, to £0.6690, a ten-month low, and it was down 0.8 percent to NKr7.8358 against the Norwegian krone.

That was a two year low. The euro was affected by new French data showing industrial production down 0.3 percent in April, a larger than expected drop and the third consecutive month of decline.

Also, the French trade deficit rose from €2.34 billion in March to €3.22 billion in April as a result of record imports.

Tags: European Stocks & Shares News, Exchange Rates News, European Economy News by Brian Turner
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The European Parliament has entered a dispute over the 2007-2013 EU budget by supporting a proposal to spend 1.07% of member states’ gross national income.

The figure lies between the 1.14% suggested by the European Commission, and the 1% demanded by the six largest net contributors to EU funds.

The issue will be discussed at a European summit in Luxembourg next week.

The UK is being pressurised to give up its rebate, awarded in 1984, but says that it will use its veto to preserve it.

The Luxembourg presidency of the European Union is formulating a compromise proposal and is holding a series of bilateral negotiations with European leaders.

Prime Minister Tony Blair will be the last to meet the Prime Minister of Luxembourg, Jean-Claude Juncker, who proposes holding the British rebate at its current level, and gradually phasing it out.

The European Parliament has said that it will reject any agreement that allocates too little funding for research and development and regional aid. This is thought to be a reference to a compromise proposed by Luxembourg in May, which would have take approximately 50bn euros from the “Lisbon Agenda” programme to make Europe a more competitive economy.

It would also have reduced the regional aid budget by 40bn euros.

Many governments believe that reaching a budget agreement would show that the EU was back on track following the French and Dutch rejection of the European constitution.

Luxembourg negotiators think the UK may compromise on its rebate if French President Jacques Chirac agrees to compromise on agricultural aid.

Tags: European Union News by Brian Turner
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While new economic figures showing a decline in Italy’s service sector even as the sector grew in the wider eurozone were released Friday, Roberto Maroni, Italy’s welfare minister called for a vote to bring back the lira as Italy’s currency.

He did not call for his country to abandon the euro altogether, but instead for dual circulation of the two currencies. He referred to the example of Britain to justify his idea. Mr. Maroni said that the euro and those who support it are at fault in the weak economic conditions Italy is currently suffering, echoing the Italian prime minister’s accusations that the high exchange rate of the euro in relation to the dollar is to blame for Italy’s recession.

However, economists are of the opinion that Italy’s economy would only suffer further damage should the country abandon the euro because interest payments on its national debt would skyrocket, canceling out any advantage that would be given by a competitive devaluation. Mr. Maroni’s statements do not represent government policy, but they do point out issues that the European Union will be dealing with now that both France and the Netherlands have voted down the EU constitution.

Tags: European Stocks & Shares News, European Union News by Brian Turner
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The European Central Bank announced on Thursday to maintain its main interest rate at 2 percent for the 24th month in a row. The decision was expected, especially considering the recent votes rejecting the European Union constitution by the French and the Dutch.

The decision did not please those who have been calling for the ECB to cut interest rates to stimulate economic growth. Those who have been calling for rate cuts include the Organization for Economic Co-operation and Development (OECD), the Ifo Institute in Germany, Germany’s economics and labour minister, and several Italian ministers.

Reports that business confidence in Germany is down and that growth expectations for the eurozone in 2005 and 2006 have been revised downward have helped stimulate the recommendations that rates be cut. The OECD has recommended that the rate should fall by 50 basis points.

Such a cut is unlikely, however, considering that Jean-Claude Trichet, president of the ECB, believes that interest rate cuts would in fact hurt prospects for growth and has said that he would like to see eurozone interest rates rise as soon as conditions permit it.

Tags: Interest Rates News, ECB: European Central Bank News by Brian Turner
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Rumors ran rife on Wednesday that the European Monetary Union might be headed for a breakup. One manifestation of the rumor was that the German Bundestag had ordered a report to look at what the consequences would be for a country that wanted to leave the EMU.

The German finance ministry called the rumors “absurd”, but the talk still affected currency trade even though most analysts believe that a breakup of the eurozone is not very likely at all. One analyst quantified the possibility of such a breakup at 5 percent or less.

Still, many analysts feel that the possibility cannot be entirely ignored. Amid the rumors, the euro lost another 0.6 percent in relation to the US dollar on Wednesday to $1.2234, an 8-month low. The euro also reached a 9-month low against the yen, falling 0.7 percent to ¥132.59.

The shared currency fell against sterling as well, 0.3 percent to £0.6749, a four week low. It hit a 2-year low against the Norwegian krone, falling 0.5 percent to NKr7.9053.

Tags: European Stocks & Shares News, Exchange Rates News, European Economy News, European Union News by Brian Turner
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