For Euro's Woes, IMF Brass Invoke the I-Word --- Intervention to Be Hot Topic For the G-7 in Prague, But Will U.S. Go Along?
PRAGUE -- For the second day in a row, a top International Monetary Fund official put public pressure on the world's big economies to intervene to support the plunging euro, but there were no signs that the U.S. is prepared to join such an effort.</br></br>Calling the euro "heavily undervalued," the IMF's new managing director, Horst Koehler, told reporters it is clear "that intervention cannot be taboo, because it is part of the instruments any central bank or government has available." The day before, the IMF's chief economist, Michael Mussa, said the conditions ripe for coordinated intervention are rare and added, "One has to ask, `If not now, when?' "</br></br>The unusually blunt comments from the IMF officials sparked speculation in financial markets that finance ministers and central bankers from the Group of Seven big industrialized nations, who are to meet here Saturday, may be preparing to step up the rhetoric about the euro or agree on joint intervention.</br></br>But the common currency fell to a new intraday low against the dollar of 84.38 cents, suggesting the markets weren't counting on intervention. The euro, born at $1.17 in January 1999, was trading late yesterday in New York at 84.83 cents, down from 85.09 cents Tuesday.</br></br>The conventional wisdom about currency-market intervention, particularly among U.S. officials, is that it is most likely to succeed when it is coordinated among big economies, announced publicly and catches the markets by surprise. Although G-7 officials appear to agree that the euro is oversold, and by implication that the dollar is unsustainably high, widespread expectations about intervention offer an argument to delay rather than to act now.