By John Schmid

Published: September 15, 2000

FRANKFURT The European Central Bank bought euros for the first time Thursday in a move that lifted the slumping common currency but that the bank refused to label a market intervention.

Whether you call it intervention or not, intervention was not the motive, said Wim Duisenberg, president of the central bank.

The bank justified the purchase of 2.5 billion ($2.15 billion) in the open market as a routine fine-tuning of its balance sheet. Mr. Duisenberg said it was common practice for central banks to sell off interest income earned on foreign-exchange holdings as a way to rebalance their reserves.

Spending only the interest on its reserves, and not the reserves themselves, deprived the move of the firepower of a bona fide intervention. But the operation keeps the central bank’s powder dry if it elects later to carry out a large-scale intervention. Foreign-exchange traders, who have kept the euro under persistent pressure since it came into being in January 1999, said the gesture could presage a full-blown intervention. Economists said the bank’s move sent an unmistakable

warning that the euro’s decline had gone too far for the central bank’s comfort.

This is a signal that they are worried, said Joachim Fels, a London-based economist at Morgan Stanley Dean Witter. I would view this as a stepping stone toward massive intervention in the future if the euro declines further.

The euro rose as high as 87.17 U.S. cents before pulling back to 86.38 cents in late trading in New York, still up from 85.90 cents late Wednesday.

Economists added that the unofficial intervention Thursday was the best currency defense the central bank could muster without the support of the U.S. Federal Reserve System, which is seen as reluctant to join any effort to aid the new currency.

Significantly, the euro purchase was the first time the central bank had spent any money to underpin the beleaguered currency. Previously, it had given the euro only rhetorical support. But mere words failed to brake a 20-month decline that has sapped confidence in Europe’s historic integration project and created fears among some Europeans about their savings and pensions.

I was not disappointed by the market reaction to the bank’s purchase of euros, Mr. Duisenberg said. It was not motivated to damage the euro.

The euro’s founders hoped to merge Europe’s economies and challenge the dollar’s dominance, giving the Old World a stronger voice in global affairs and offering a European welfare-state alternative to the American free-market model.

But as the euro has slumped, a growing chorus of cynics has compared unified Europe to a mismanaged publicly traded company and the euro’s exchange rate to its share price. They say the currency’s flagging fortunes are an indicator of the failings of the whole integration effort.