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. Last Updated: 07/27/2016

Pundit Calls For ECB to Act on Euro




STOCKHOLM, Sweden -- Nobel laureate Robert Mundell, dubbed the "godfather of the euro," called Tuesday for the European Central Bank to take a more active role to stabilize the single currency and prevent cracks from emerging in euroland.


Mundell, winner of the 1999 Nobel Memorial Prize in Economics, said the ECB had managed to avoid a difficult decision over intervention after the euro slipped below parity to the dollar last week with buying by Hong Kong's Monetary Authority lending support to the unit.


After slipping to a lifetime low of under 99.9 cents in recent days the 11-month-old euro has recovered to trade at around $1.03 Tuesday. Analysts say the outlook remains choppy.


"The ECB had a narrow escape this time, and maybe we will see other central banks step in again when the euro hits the bottom," Canadian Mundell said in Stockholm, where he will be awarded his almost $1 million prize Friday. "But we still need to get intervention at unspecified extreme levels to establish the fact that intervention may be used to stop these swings that are likely to set the stage for more permanent inflationary processes."


Mundell, 66, was awarded the Nobel prize for his ground-breaking work in the 1960s championing the concept of a single currency and setting out conditions under which a currency union could succeed.


More recently, he has been an avid proponent of the euro, arguing that it is one of the most significant financial developments of the century.


Mundell favors central bank intervention as a tool of monetary policy to stop big swings in the rate between the euro and the dollar.


"Take the fluctuations of the dollar-to-Deutsche mark rate over the past 20 years. If the euro was to fluctuate like this it would crack euroland apart," the economics professor from New York's Columbia University said at a news conference.


Mundell predicts the euro-dollar rate will rise next year as the U.S. economy slows down while the euro zone picks up.


"If the ECB doesn't intervene at the downward direction, it will lack the moral authority when it needs to intervene in a more important sphere ... soaring out of its competitive range," Mundell said.