Forex Flash: French President Hollande ignored basic economics yesterday - Commerzbank

Commerzbank analysts are amazed with French Prime Minister François Hollande's take on Euro exchange rates made in front of the European Parliament yesterday, concerned with its “strength” and in favor of an explicit exchange rate policy for the euro zone. “Comments of this nature not only negate one of the main pillars of the Monetary Union but also ignore basic principles of economics”, wrote analyst Carolin Hecht.

“The underlying principle is: in a world of free capital movement a central bank cannot set an exchange rate target without abandoning its independence as regards monetary policy. As the independent monetary policy institution of the euro zone the ECB is responsible for price stability and not a weak euro to support growth”, she wrote, adding that the institution has already had to abandon enough control of liquidity supply as a result of the debt crisis as the capital flight from the peripheral countries is being counterbalanced with the help of a massive increase of the central bank money supply.