Decline in foreign investment in U.S. is greater than it appears

Section:

From Reuters
Thursday, January 13, 2005

http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=7321265

FRANKFURT -- The European Central Bank will post a 2004
budget loss for the second year in a row due to the U.S.
dollar's decline against the euro, the ECB Vice President
Lucas Papademos said on Thursday.

Papademos said at the ECB's news monthly conference
that the bulk of the central bank's foreign exchange reserves
are held in dollars. The U.S. currency has lost about 7
percent of its value against the euro in the past year.

He declined to reveal the exact size of ECB dollar holdings.
The ECB will release its 2004 financial results in March.

The euro's rising external value over the course of 2004,
particularly against the dollar, has raised expectations that
the ECB's net losses have widened due to the declining
euro value of the central bank's dollar-denominated assets
and low domestic and foreign interest rates.

This development would be similar to 2003, when the ECB
made a net loss of 477 million euros compared with a profit
of 1.22 billion euros in 2002.

The euro's gain against the dollar in 2004 compared with a
gain of over 20 percent the year before.

The central bank's policymaking Governing Council decided
to offset the 2003 loss against the ECB's general reserve
fund.

A net loss for the ECB in 2004 could have knock-on effects
for the profits of national central banks in the euro area,
which would have shared in any profit.

Germany's Bundesbank, for example, is expected to see
almost no profit in 2004 and would therefore not be in a
position to transfer some 2 billion euros that Finance
Minister Hans Eichel has penciled into this year's federal
budget.

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