June 19, 2003	Thursday	Rabi-us-Sani 18, 1424

BERLIN, June 18: Central banks and governments should consult and act together if the dollar should fall further or faster on foreign exchange markets, International Monetary Fund managing director Horst Koehler said on Wednesday.

Governments and central banks must and will come together if there is a further and faster fall in the dollar, Koehler was quoted as saying in an interview with Germany’s Manager magazine.

If there is the danger of an acute currency crisis, decisions can be made quickly, in a few hours, Koehler said, adding that it was premature to write off the dollar, which has weakened against the euro in recent months.

The short-term growth prospects for the United States are significantly better than the euro zone, and the United States will remain an engine for global economic growth long-term.

Every country has to show it has its own problems under control. If the governments of the most important countries demonstrate this, then currencies will stabilise, Koehler said.

Koehler said that he did not think German banks faced similar problems to those faced by banks in Japan, which has suffered from a credit crunch.

However, German credit institutions clearly need to improve their profitability and quickly. The German economy is stagnating for the third year and an IMF analysis has warned of mild deflation, he said.

Despite all the differences, the Japanese example is a warning. If structural reforms in Germany fail, then stagnation could set in. I don’t want to even imagine what this could mean for the labour market, he said.

Koehler, one of the architects of the European Union’s Stability and Growth Pact on the common currency, said that Germany could allow automatic stabilisers to work — official shorthand for letting its budget deficit rise — without compromising the Maastricht principles.

I think this is in line with the aims of the Stability Pact if they are accompanied by government measures to deal with structural budget deficits in the medium-term, he said.

Koehler said problems in Germany, Europe’s biggest economy, could be resolved and Chancellor Gerhard Schroeder’s Agenda 2010 package of economic reforms was a good start.

Reforms must go further. And there is no time to lose. The overregulation of the labour market must end and greater differentials between wage deals must be permitted, he said.

He said that the pension and health systems had to be made financially viable and education needed reform.

This is all about making the social welfare state fit for the 21st century, not about getting rid of it. We need elites to be able to keep up in a globally competitive world. —Reuters