Buba tells Euro politicians to keep hands off ECB

Its words also coincided with a series of statements from the ECB leadership dampening prospects for an early cut in euro zone interest rates - comments which could have been aimed at politicians who say the region should go for growth.

The Bundesbank's views reiterate its strong support for the ECB's independence, which last surfaced in June 2000 after French Finance Minister Laurent Fabuis entertained the question of whether politicians should set the ECB's inflation target (although it was later said that Mr Fabius had been misreported).

The Buba's observations on this occasion may have been stirred by remarks by Belgian Finance Minister Didier Reynders, who currently chairs the Euro Group, that appeared to demand a role in protecting the region's interests.

In a chapter on monetary cooperation, the Bundesbank said that attempts to keep the euro artificially low, for example, could boost inflationary pressure by increasing import prices. "But above all there would be a danger that attempts to dampen the rise in the exchange rate through foreign currency buying could trigger strong political pressure to loosen monetary policy," the Bundesbank said.

POLITICIANS A WEAK SPOT FOR EURO

The euro common currency was sapped in 2000 by ambiguous statements from European leaders that appeared to welcome its slide because this had helped to boost regional exports. This created confusion, although the Euro Group has since learned to speak with one voice and had been very disciplined in repeating the common interest in seeing the euro appreciatie in line with strong underlying fundamentals.

But the Bundesbank might not like what it has been hearing recently from finance ministers."Such interference would cast doubt on whether Europe's monetary policy, like the Bundesbank's policy earlier, will remain wholly committed to price stability in all circumstances," the Bundesbank said.

The ECB is charged by law with the task of policing price stability in the 12-nation euro zone and has hiked interest rates sharply since November 1999 to defend this mandate against a climb in inflation to almost three percent.

Politicians attending a regular meeting of European finance ministers (Ecofin) in Brussels Jan. 19 said the region had a duty to help pick up the slack for world growth as the U.S. economy slowed. Reynders said Europe should not fear fallout from the United States and that "responsibilities will be shared" with the ECB.

French Finance Minister Laurent Fabius separately stressed that investors were looking to Europe for growth and stability which was a responsibility that should be honoured.

But on Jan. 23 ECB chief economist Otmar Issing said in a newspaper interview that a recent U.S. rate cut would not sway the bank, while ECB President Wim Duisenberg said in a Strasbourg speech it was still on alert for secondary price effects from inflationary pressures due to oil prices and the weak euro.

Frankfurt financial sources said that the ECB was unlikely to welcome the ambitions of the Euro Group to get involved in policy and that statements from politicians were inevitably treated as coded messages that trod on its toes. "The ECB is going to be wary of Reynders' ambitions for the Euro Group because it does not want anyone leaning on its policies," said one source.

The same appeared to be the case at the Bundesbank. "The Euro Group should therefore take special care to avoid creating the impression in public that it wants to have a say in intervention policy," the Bundesbank said.