European Union Monetary Affairs Commissioner Pedro Solbes said he saw no threat of deflation in Europe and repeated that he was more concerned about the speed of the euro's rise than its actual level.
"What has concerned me more in this period is the speed and volatility with which we have reached this level (of the euro) rather than the level itself," Solbes told reporters at the World Congress of Savings Banks in Madrid.
The single currency is currently trading just below its January 1999 launch level of $1.1747, having stormed higher this year.
Asked if there was a risk of deflation in Europe as regional economies remain sluggish and consumers seem reluctant to spend, Mr Solbes replied: "I do not think so."
"If we look at the evolution of prices and salaries, the average growth in wages in Europe is around three per cent, which does not give me the impression we will have deflation problems here in Europe," he added.
Falling prices in Japan, together with a recent comment by Federal Reserve Chairman Alan Greenspan that deflation posed a minor threat to the US economy, have led some economist to wonder whether deflation could spread to Europe.
Figures released earlier this month showed that growth in euro zone economy as a whole was flat in the first three months of 2003, while the economies of Germany, Italy and the Netherlands shrank.
Data showing a 0.2 per cent fall in first-quarter gross domestic product (GDP) in Germany should be analysed with caution as they reflected circumstances before Iraq war ended, Mr Solbes said.
"This (data) does not substantially change the scenario which we have for the evolution of the European economy at this time," he added.
In a speech to the conference later in the day, Mr Solbes said the future performance of financial markets would be key to recovery in the real economy.
He said the European Commission's spring economic forecasts released last month - which revised down growth forecasts for the euro zone and European Union this year and next - had highlighted the weaker state of the European economy. "The recovery has been postponed yet again," he said, adding that financial conditions were partly responsible for this.
In most EU countries, he said, households had benefited from low interest rates and rising house prices. "However, in some cases, the high level of indebtedness of households and of house prices raise concern of a possible reversal in the near future should interest (rates) rise or incomes fall," he warned.
Mr Solbes said that growing political and economic uncertainty had weighed on financial markets and appetite for risk remained relatively low.
"Several rallies in equity prices have proved short-lived and investors have continued to prefer safer assets to the point of raising concern of an over-valuation of government bonds and housing market bubbles," he said.
These financial trends were contributing to a delay in the economic recovery, although "we have seen tentative signs of improvement lately," he said.