Europe News

Draghi: Strong euro is a risk to recovery


The recent rise in the value of the euro could stifle the flickering signs of growth in the euro zone, according to the President of the European Central Bank (ECB) Mario Draghi -- who has also tried to quash rumors about his own future.

Speaking in front of the European Union Parliament's economic and monetary affairs committee in Strasbourg, Draghi stressed that while the exchange rate is not a policy target for the ECB, he was closely monitoring the euro's effects on the region's struggle since the sovereign debt crisis of 2011.

"The exchange rate remains an important driver of future inflation in the euro area. Certainly, the appreciation that took place since mid-2012 had an impact on price stability. In the present context, an appreciated exchange rate is a risk to the sustainability of the recovery," he said.

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Resting at 1.20 against the dollar in mid-2012, the single currency has appreciated close to, but has not hit, the $1.40 level in recent months with the Fed continuing to pump extra liquidity into its economy and thus lowering the value of the greenback.

Mario Draghi
Georges Gobet | AFP | Getty Images

Business leaders have bemoaned the strong euro, with the exchange rate supposedly having a detrimental effect on imports. Draghi has been urged to do more to tackle its rise although the ECB officially has no mandate to control the currency and instead focuses on movements in consumer prices -- other central banks, like the U.S. Federal Reserve, can introduce measures to help employment.

With a slew of additional monetary policy tools detailed by Draghi at the ECB's June meeting, many currency experts now forecast the euro could start to drop lower. Draghi's remarks Monday build on the belief that the ECB will do more over the coming months to stimulate exports and thus economic growth in the region.

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The euro remained stubbornly resistant however, with the currency little changed against the dollar on Tuesday morning, despite his dovish words.

Draghi also spoke more generally about the euro zone's recovery, saying that the risks surrounding its economic outlook remain on the downside.

"Geopolitical risks, as well as developments in both emerging market economies and global financial markets, may have a negative effect on economic conditions in the euro area, through their impact on energy prices and global demand for euro area products," he said.

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"Further downside risks include an inadequate implementation of structural reforms in the Member States and weaker than expected domestic demand."

The ECB President also used the speech in Strasbourg to address his future role at the central bank. When asked about rumors saying that he may leave his post and return to his native Italy, he said that the reports were "unfounded".