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Talk of Euro Intervention Intensifies

Verbal intervention to try to stop the euro's advance is all that exporters will get for the moment, but if the going gets tough things may change, analysts say.

Exchanging Dollars and Euros
Exchanging Dollars and Euros

It would not be a first for the euro, which in its early stages had to be propped up against the dollar to prevent a loss of confidence eroding the then-new currency's status.

In September 2000 the ECB intervened jointly with U.S., Japanese, UK, and Canadian authorities to halt the single currency's fall, and the euro, which was hovering around its record low of $0.84, shot up above $0.90.

It had lost as much as 28% of its value against the U.S. dollar since its launch in January 1999.

Speed is the Issue

But a similar decision to reverse the dollar's plunge will not be taken lightly and for the moment markets have to content with U.S. Treasury Secretary Henry Paulson's mantra of favoring a strong dollar.

"(Intervention) has to do with the speed of the depreciation," Erste Bank’s Veronika Lammer told CNBC.com. "I do not think (the ECB) would cut the interest rates as long as the dollar is in a normal stage."

The dollar has lost around 20 percent of its value against the euro in the past two years.

An intervention like the one in the early stages of adopting the euro, when the single currency fell too fast against the dollar, was likely to be considered if the greenback's depreciation quickens, Lammer said.

"They would intervene together with the Fed if they feel there would be loss of confidence in the US dollar. They would buy dollars on a coordinated basis," she said.

Contact Europe: Economy

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