The European Central Bank (ECB) attempted yesterday to put a brave face on the continuing slide in the value of the euro, insisting that the currency would recover as soon as Europe's economy improves.

Speaking in Frankfurt after a meeting of the bank's governing council, its president, Mr Wim Duisenberg, claimed that the fall in the value of the euro against the dollar was mainly due to the unexpectedly robust performance of the United States economy.

"I can see more factors pointing to an appreciation of the euro than a depreciation. Over the longer period, I'm full of confidence in the performance of the euro," he said.

Mr Duisenberg declined to say whether the ECB had intervened in the financial markets to prevent the euro from falling even further and he refused to speculate on whether the currency was sliding towards parity with the dollar.

But he did not attempt to disguise his displeasure at last week's decision by EU finance ministers to relax the rules of the Stability and Growth Pact to allow Italy to run a larger Budget deficit this year.

"I would be dishonest if I were to say there was not some loosening of the pact. If this were to become a trend across Europe, it would be a real reason for concern," he said.

Yesterday's meeting left interest rates for the euro area unchanged at 2.5 per cent and the governing council noted that prices remained stable throughout the 11 countries that are part of Economic and Monetary Union.

Mr Duisenberg painted a cheerful picture of developments in the world economy, remarking that all South East Asian countries except Japan were starting to recover.

But he admitted that the hoped-for upturn in Europe's economy had yet to materialise after the marked slowdown in the final months of 1998.

"At the same time, when considering the broad outlook for economic developments, the governing council agreed that more favourable conditions for a recovery in the course of 1999 and stronger growth thereafter are in place.

"For the euro area better to exploit its growth and employment potential, decisive structural measures in other fields of economic policy are urgently needed.

"In this context, it is crucial that the conditions of the Stability and Growth Pact are strictly adhered to," he said.

EU leaders meeting in Cologne today are expected to issue a statement on the euro, which has lost 13 per cent of its value against the dollar since its introduction on January 1st.