Merkel backs low interest rates that have weakened euro

[BERLIN] German Chancellor Angela Merkel showed her support for the eurozone's low interest rate environment on Friday, suggesting it had supported reform efforts in countries such as Spain and Portugal by preventing the euro from rising too much.

German politicians rarely comment on exchange rates or central bank policy, citing the independence of the European Central Bank (ECB). Ms Merkel's comments to a business conference in Berlin sent the euro down more than half a cent to below US$1.12.

In her remarks, she said a strong euro "means that it is more difficult for (countries such as Spain and Portugal) to reap the benefits of reforms".

"At the very least I'd like to ask for your understanding that central banks, like the European Central Bank, have to think about what to do if the inflation rate is so low and to ensure that we don't end up in a deflationary cycle," she said.

The ECB's decision this year to buy large quantities of bonds was opposed by some in Germany, but Ms Merkel's comments suggested that she believes the move was justified, in part to keep the euro from rising too much and undermining reform efforts in other eurozone countries.

The ECB's quantitative easing has pushed down the value of the euro against the dollar.

The currency had already been under pressure on Friday after the International Monetary Fund pulled out of debt talks with Greece.

Ms Merkel said all parties involved in the Greek aid talks needed to keep talking to resolve the country's problems.

"Where there's a will there's a way but the will has to come from all sides so it's important that we keep speaking with each other," she said.

REUTERS