Draghi Unfazed by Euro’s Strength

If Mario Draghi is worried about the strength of the euro, he’s hiding it well for now. The European Central Bank president has shirked any invitation so far to bemoan the recent appreciation of the single currency in the style of his predecessor Jean-Claude Trichet, who used to complain about “brutal” moves that risk damping growth.

Instead, Draghi has pointed to prospects for a stronger-than-anticipated recovery, suggesting he might tolerate the euro’s gain as proof that his campaign to revive the economy is returning results, Bloomberg reported.

“A lot of central bankers take the view that if the currency rises for good, solid, fundamental reasons then it’s not worth standing in the way,” said Steven Bell, chief economist at BMO Global Asset Management in London. “The reality is that the growth outlook in Europe has changed dramatically—the economy is growing strongly—so some currency strength is only to be expected.”

That reality is founded on healthy domestic spending and investment, making the recovery less vulnerable to any damping impact of a stronger euro on exports. Inflation, which the ECB is struggling to return toward 2%, may be less well insulated against currency gains and their effect on the price of imports.

Policy makers can assess the impact of the euro’s 12% jump this year when they start their discussion about the future path of quantitative easing in September. New economic forecasts will be published at that time.

Draghi has limited his commentary on the euro to a few seemingly untroubled words after the governing council’s last meeting:

“The repricing of the exchange rate has received some attention during the various exchanges of views, and in various ways.”

But since that July 20 meeting, when he argued that financing conditions remain supportive of a pickup in price growth, they have deteriorated.