Continued euro strength could hurt growth, slow inflation -Commission

A long-lasting appreciation of the euro's nominal effective exchange rate could hurt the euro zone's economic recovery and make the task of boosting inflation more difficult for the European Central Bank, the European Commission said in a paper. The document, seen by Reuters, was prepared on Sept 16th by the EU executive arm for the discussions of euro zone finance ministers on Monday.

A long-lasting appreciation of the euro's nominal effective exchange rate could hurt the euro zone's economic recovery and make the task of boosting inflation more difficult for the European Central Bank, the European Commission said in a paper.

The document, seen by Reuters, was prepared on Sept 16th by the EU executive arm for the discussions of euro zone finance ministers on Monday. The Commission said the euro appreciated by around 7.5% in nominal effective terms (NEER) between February and August 2020.

"A further substantial strengthening of the euro would carry significant downside risks to euro area growth and inflation in a context of a fragile recovery. Depending on the causes of the appreciation, a long-lasting 5% appreciation of the euro NEER could be associated with a reduction of GDP growth of -1.1% to -0.9% after one year and a reduction of inflation of -0.8 to -0.5%," the paper said.