Finance ministers from the 15 countries using the euro expressed, for the first time, their joint concern regarding their currency’s surge to its highest level yet, hinting that the US should be doing more to halt the dollar’s downward slide.
“In the present circumstances, we are concerned about excessive exchange rate moves […] We don’t think the recent moves are reflecting economic fundamentals,” said Luxembourg Prime Minister and head of the Eurogroup Jean-Claude Juncker, adding: “We have never previously said that we were concerned.”
The statements came just one day after the euro hit a record high of $1.5275 on 3 March, making exports from the bloc even more expensive for its largest trading partner.
France has already been pushing for the European Central Bank to do something about the euro’s rise for months, saying it is killing its exporting enterprises’ competitiveness. But some eurozone countries, including the Netherlands and Germany, consider that a strong euro has advantages – most notably in terms of controlling soaring inflation levels, which hit a 14-year high of 3.2% in February.
While the strength of the euro should increase European consumers’ purchasing power, the steep rise in energy and food prices has prevented this from happening and consumer spending in fact retracted in the last quarter of 2007, according to the EU’s statistical agency Eurostat.
In light of this, the ECB, which holds its monthly meeting on 6 March, is expected to keep its interest rates stable at 4%, despite some signs of growing attention for currency market developments.
In a rare comment on exchange rates, ECB President Jean-Claude Trichet said on 4 March: “I consider very important what has been affirmed and reaffirmed by the US authorities, including the Secretary of the Treasury and the President of the United States, according to whom the strong-dollar policy is in the interests of the United States of America.”
The statement came after Federal Reserve Chairman Ben Bernanke caused a further slide in the dollar’s value by telling Congress that its decline was helping to narrow the huge US trade deficit.
Trichet’s words are also looked upon as a sign that the ECB may consider a rate cut in the coming months. They were immediately welcomed by French Economy Minister Christine Lagarde, who commented: “I simply want to underline in passing that the President of the ECB, contrary to his custom, chose to talk today about exchange rates when entering the meeting.”