MercoPress. South Atlantic News Agency

IMF describes the Euro as a “great success”

International Monetary Fund Managing Director Rodrigo Rato described the Euro as a “great success” and once again warned about world financial misbalances during a press conference Wednesday in Frankfort.

"The Euro is one of the great successes of Europe, a very important instrument go help European countries in a global world", said Mr. Rato, "besides it has provided the world with a second reserve currency".

Mr. Rato's statements follow concerns over a possible collapse of the Euro monetary system following the landslide rejection of the EU constitution in France and the Netherlands and suggestions from Italian government officials to abandon the single EU currency system.

Social Affairs minister Roberto Maroni proposed a double circulation, the Euro and the Italian Lira, and Reform minister Roberto Calderoli suggested returning to an Italian currency pegged to the US dollar.

Mr. Rato underlined that a single currency by itself is no guarantee of prosperity, which depends "on other necessary reforms at domestic level". He considered that financial divergences between the 12 members of the Euro zone can't be blamed on the single currency but rather in government policies not adapted to global circumstances.

Mr. Rato mentioned that labour and tax system reforms are vital, --and too long delayed--, for many EU countries.

"World misbalances don't constitute a threat but rather a risk, and that risk is expanding", said Mr. Rato.

However the IMF head called on the European Central Bank to adopt a more flexible monetary policy and also contemplate a reduction in interest rates.

"If growth weakness persists, ECB should not discard an interest rate cut", said Mr. Rato who nevertheless considered the current rate "adequate".

Recently several politicians from the Euro zone have been calling on the ECB to reduce interest rates which are at a historic low of 2% and were again confirmed last May.

Among them are German Finance minister Wolfgang Clement, Italian Prime Minister Silvio Berlusconi and the Organization for Economic Cooperation and Development.

Mr. Rato cautioned that several Euro zone countries such as Italy face the danger of stagnation and said growth differences between country-members are increasing.

IMF estimates Euro zone growth in 1,6% for 2005.

"We haven't changed our forecast, but growth has slowed down. Nevertheless we have perceived signals that in the second half of 2005 a change could and should take place", insisted Mr. Rato.