The euro will most reach a price of USD 1.5 by the end of 2010, US economist Warren Mosler has forecast.

The deflationary policy of the European Central Bank will be the major cause of the common European currency gaining in value, Mosler, who the founder and principal of broker/dealer AVM, told CNBC.com.

“If the euro keeps going at the rate it’s going, it could go to USD 1.45-1.50 by the end of the year,” he said making clear his prediction that there was nothing to stop the euro’s appreciation vs. the US dollar other than a reversal of the policy of the ECB.

The ECB started buying government bonds belonging to distressed euro zone members such as Greece, Ireland, Portugal and Spain to ease market concern regarding these countries’ ability to fund themselves and some analysts have said the measure may be inflationary.

Yet, Mosler says this policy is in fact deflationary because it is accompanied by tough austerity conditions.

“They’re causing a shortage of euros by requiring governments to rein in spending. It’s a highly deflationary move and that’s what is driving the euro higher. Right now the ECB and the euro zone are tightening up their supply of euros,“ he said.

Many analysts have said that the ECB is promoting policies that go hand in hand with the euro zone’s biggest member’s fears of inflation, CNBC.com points out.

“No-one knows how long the ECB are going to do it… they could change their mind tomorrow,” he said commenting on the ECB’s willingness to continue to buy government bonds, which is seen as an element of uncertainty.

“The markets cannot punish the ECB. They can’t punish the issuer of the currency. When you’re the issuer of a modern currency, you can credit an account and there’s nothing the market can do about it,“ he explained.

Mosler also pointed out that the ECB has now de facto shifted to deciding fiscal policy for the countries in the euro zone, since their help by buying bonds comes with conditions regarding cutting debt and budget deficits.

“China would like nothing more than to buy euros – they’re doing it through buying Greek debt. That’s just one more force for a stronger euro,” the US economist added with respect to China’s announcement that it will buy Greek debt, which was hailed in Europe as proof of confidence in Greece’s ability to pay its debt.

If Mosler's predictions about the appreciation of the euro materialize, the Bulgarian lev could reach levels of BGN 1.30 for USD 1.

The Bulgarian lev is pegged to the euro in a currency board at a rate of EUR 1 for BGN 1.95583. (When the board was introduced in 1997, the lev was pegged to the deutsche mark at BGN 1 = DEM 1.)

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