FRANKFURT, Nov 30: The European Central Bank will be looking for the switchover to euro banknotes and coins at the end of this year to be as smooth as possible to repair some of the damage done to its credibility over the past three years.

The ECB, which took over the monetary policy reins for the 12-country euro zone on January 1, 1999, has had a tough first few years, slammed on all sides for its interest rate decisions, its communication policy and the far from dazzling peformance of the euro on the foreign exchange markets.

“It’s going to be a great challenge. If it doesn’t go smoothly, people are going to blame the ECB, whether rightly or wrongly,” said an analyst at Dresdner Kleinwort Wasserstein, Rainer Guntermann.

The ECB has indeed played a vital role both in the coordination of the technical preparations for what will be one of greatest logistical challenges in monetary history, as well as in the public information campaigns regarding the new currency.

It is therefore understandable that the ECB’s first ever president Wim Duisenberg is so closely identified with the single currency and why he was so close to tears when he unveiled the new banknotes at the end of August.

Duisenberg will go down in history as the man who oversaw the changeover and he therefore has the unenviable task of making sure everything runs smoothly when the national currencies of 12 participating countries are gradually withdrawn from circulation during the first two months of 2001 and replaced with the new coins and banknotes.

A glitch-free changeover will certainly add some badly needed polish to the ECB’s image, tarnished by the chronic weakness of the euro which has lost around a quarter of its value against the dollar in the three years since its birth.

A number of gaffes by Duisenberg notwithstanding, which only contributed to the euro’s ills, there has been little the young central bank could actually do to reverse that trend.

Its argument that the “internal” value of the currency — in other words its ability to keep inflation under control — remains intact has proved to be beyond the grasp of the general public.

And they have simply remained dazzled by the almost indecent health of the dollar and unsettled by the large number of unknowns that the euro represents.

The current global economic gloom also presents the ECB with a hard task in terms of monetary policy.

“It still appears to be a little late,” said DKW’s Guntermann. “It’s got a lot of credibility to gain there, too.”

The guardian of the euro does indeed seem to have been a little slow to react to the sharp deterioration in global economic conditions.

While the US Federal Reserve had been busy slashing rates since the beginning of the year, the ECB only began to loosen its monetary grip beginning to ease at the end of the summer, and then only very cautiously.

“The ECB is too optimistic regarding growth, but too pessimistic regarding inflation and is therefore too scared to cut rates,” said BNP Paribas analyst Paul Lee-Mortimer.

Its information policy also leaves a little to be desired.

“If you’ve understood what I’ve just said, then I’ve expressed myself badly.”

That famous quip by US Fed chairman Alan Greenspan appears tailor-made for the ECB, where apparently uncoordinated public comments by its legion officials often sound like nothing more than a cacophonous roar.

A recent study by Credit Suisse First Boston showed that only 36 per cent of analysts succeeded in predicting ECB rate moves, while 86 per cent of them managed to second guess the Fed correctly.

In its defence, the ECB is merely carrying out a mandate conferred on it by governments, a mandate which many critics now say is too narrow.

The ECB’s overriding task is to safeguard price stability, while the Fed is also obliged to actively support growth.

But the ECB may not be quite as blinkered as its detractors suggest — on November 8 it sliced half a percentage point off its key rates, explicitly stating that it was a move aimed at boosting confidence.

Meanwhile, most analysts expect the euro launch to go well. “It’s very well prepared. It will be an overall success,” forecast Adolf Rosenstock of the Nomura brokerage.—AFP