The threat of a strong euro

Will currency traders soon drive up the euro to dangerous heights?

Europe's central bankers soon may have to battle with a new problem - a strong euro. The BBC's Jonty Bloom explains.

Wim Duisenberg has, after all the fuss about his comments a fortnight ago on intervention on the currency markets, been keeping his head down.

But the press conference after the fortnightly meeting of the ECB's governing council is one of the few times when he can't avoid saying something.

Given the slight recovery in the value of the euro on the foreign exchanges over the past week, Mr Duisenberg might have taken the chance to blow his own trumpet.

However he is obviously feeling a bit cautious at the moment and limited himself to a simple "it is too early to judge", when asked if the euro had turned a corner.

That may be because he may have something new to worry about and that is the possibility of a rising euro.

The benefits of a weak euro

For all the bad publicity in recent months, the falling euro has been quite a boon to the economies of the eurozone.

It has however been putting upward pressure on prices.

A rise in the euro would of course have the opposite effect.

It would help to stop the importation of inflation but it is likely to put pressure on European growth rates.

The IMF announced on Thursday that the outlook for German economic growth was better than it has been for the past decade.

It forecasts growth for this year of a healthy 2.9% and an even better 3.1% next year.

But the IMF also warns there are some downside threats to the German economy, the powerhouse of Europe: the persistence of high oil prices, the risk of a recession in the US economy and - ironically enough - a sharp appreciation of the euro.

Of course, as Mr. Duisenberg said it is too early to judge whether the euro has started to recover.

But it would be a great irony if after all this fuss over its weakness a recovering euro damaged German and therefore European growth.

Especially as one of the reasons for the Euro's weakness has been the relative weakness of European growth when compared to America's.