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Wednesday June 6, 2:50 pm Eastern Time

ECB's Duisenberg trapped in Greenspan's shadow

By Lida Poletz

NEW YORK, June 6 (Reuters) - If you believe the foreign exchange market, European Central Bank President Wim Duisenberg is a disaster -- every time he opens his mouth, it seems, the euro plummets.

Just as U.S. Federal Reserve Chairman Alan Greenspan can do no wrong in the eyes of the markets, Duisenberg and the ECB can do no right -- especially with the euro languishing at six-month lows against the dollar.

``We notice that when Duisenberg speaks, the euro often retreats. Is he a positive for the euro? Certainly not,'' said foreign exchange economist Anne Parker Mills at Brown Brothers Harriman.

Without question, ECB missteps and gaffes have created unnecessary volatility and undermined confidence in the 2-1/2-year-old euro. Just last week, remarks by Duisenberg sent the currency tumbling to six-month lows against the dollar.

But central bank experts and analysts say that laying too much blame for the euro's weakness on the Dutchman's head is probably unfair.

CULT OF GREENSPAN

Duisenberg suffers unfairly in comparison to Greenspan, who has attained a near-godlike status among traders and investors for his role at the helm of a record U.S. economic expansion.

``Who would want to be compared to Alan Greenspan? It's hard not to come out looking second,'' said former Federal Reserve Bank Vice Chairman Alan Blinder.

Indeed, Duisenberg, at the front end of forging a monetary policy for 12 different countries in a brand-new institution, arguably has a much more difficult job than his celebrated U.S. counterpart, analysts said.

Ultimately, they add, the euro's weakness is linked to a struggling economy, and if the euro zone turns around the embattled euro currency will recover -- no matter who's running the show at the ECB.

But European officials haven't exactly helped.

Confusing, conflicting statements from Duisenberg and various national central bank heads, finance ministers and political leaders plagued the early days of the euro, which fell to a nadir against the dollar of 82.25 cents.

After a short reprieve late last year on the back of central bank intervention and signs of U.S. economic slowdown, the euro resumed its downward path, coming within two cents of its record lows this week.

Foreign exchange markets have looked to Duisenberg and the ECB for reasons to buy the euro, but in vain.

Just last week, Duisenberg further tarnished his reputation by appearing to play down the prospect of fresh intervention to shore up the currency -- which the market took as a green light to keep selling the euro.

``Part of the mystique of Alan Greenspan is that he is always able to say the right thing to financial markets when he needs to. Duisenberg has not had this golden touch,'' said Kathryn Dominguez, an economics professor at Michigan University, whose research has focused on central bank intervention.

HEROES AND VILLAINS

But the scuffs on Duisenberg's reputation may be more of an accident of history than anything else. Assigning blame or praise to a single central bank official has little historical precedent.

``The cult of the person is a rather new thing,'' Dominguez said. ``Most people don't know the names of the head of the Bank of Japan or the Bundesbank president, and Alan Greenspan is an important exception to the rule. In the past, the Bundesbank (Germany's central bank) as an institution had this aura, but even in the U.S. it was always the Fed -- and not one person.''

And Duisenberg has a much trickier job on his hands than Greenspan -- juggling the interests of 12 sovereign nations, some of which are on very different growth curves.

On top of that, he's running a new institution, which unlike the Bundesbank or the Fed has no well of credibility to draw on and is still trying to figure out how best to signal its intentions to the market.

For example, the ECB's reputation took a fresh beating in May when the central bank cut its key interest rate, in an apparent reversal of its earlier stance that guarding against inflation risks was paramount rather than stimulating growth.

The euro sold off sharply shortly after that surprise rate move, and since then has lost an additional 3-1/2 cents to trade around 84.50 cents on Wednesday.

``It looked like their explanation was disengenuous,'' said Tom Gallagher, political economist at ISI Group in Washington. ``That's more significant than what Duisenberg said (last week).''

``The ECB communication strategy has been far from the best. More than once it has issued conflicting statements that didn't seem to match its action,'' Blinder said. ``But it's easy to exaggerate how much effect that has on exchange rates.''

ALL IS NOT LOST

Duisenberg missteps or not, the bigger picture is that investors still think the United States is a better bet than Europe -- and that means euro weakness for the time being, analysts said.

``The rhetoric that's used may add volatility around the trendline set by fundamentals. But if you had Greenspan running the ECB over the last 2-1/2 years, what would the euro's value be? And what would the interest rate be? I don't think it would be much different from where it is,'' Gallagher added.

Blinder, who said he had been somewhat skeptical several years ago about the whole exercise of creating the euro, predicted the euro would eventually appreciate.

``Putting up its gravestone would be a big mistake,'' he said, adding ``The fact that they got their act together and actually launched the whole thing is to their everlasting credit.''

-- (m@rket.trends), June 07, 2001

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(European Central Bank) Translucent At Best

-- (M@rket.trends), June 07, 2001.