Issing admits the falling euro is 'a big psychologial problem'

The chief economist of the European Central Bank last night admitted the plunging value of the euro was a "a big psychologial problem".

The chief economist of the European Central Bank last night admitted the plunging value of the euro was a "a big psychologial problem".

Otmar Issing said news of the currency's fall against the dollar was the only message the general public was hearing.

His comments came as the single currency touched a lifetime low against the US currency for the second day running. It hit $0.8230 in early trading, but later rallied above $0.83.

"The only news on the euro is the decline in the external value," Professor Issing said after delivering a speech at Cambridge University. "This is a big psychological problem we have to overcome."

He said central banks could not control both the internal and external price stability: "To demand that central banks should control internal stability as well as external stability is demanding an impossible task."

He also said the ECB had raised interest rates because of increased pressure on prices.

A number of European politicians and ECB officials united to say the euro would recover. Eugenio Domingo Solans, an ECB member, said the euro would reflect the zone's solid economic health "sooner or later". The ECB president, Wim Duisenberg, said the growth outlook in the eurozone was positive.

The French finance minister Laurent Fabius said the euro would rise at least 20 per cent while the European Economic Affairs Commissioner, Pedro Solbes, said the euro's loss had "no significance".

Meanwhile, a senior member of the United States Federal Reserve warned the global economy was out of balance. William McDonough, president of the New York Federal Reserve, said growth was "not as balanced as one would find ideal".