, Columnist
Why Europe's Central Bank Shouldn't Worry About the Euro
Instead, it should focus on increasing flexibility in the conduct of monetary policy.
Confidence comes with a catch.
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The European Central Bank has spent much of this decade convincing markets that the euro is irreversible. It is therefore mildly ironic that policy makers in Frankfurt may be in trouble because of the sudden return of confidence in the single currency.
Investors flocking to the euro have pushed it above $1.20, a 14 percent appreciation since the start of the year. The risk is that, by making imports cheaper, a stronger single currency will make it harder for the ECB to hit its inflation target, undermining the central bank’s plans for a smooth exit from its program of quantitative easing.