Eurozone worries over exchange rate

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With the euro hitting a historic high, finance ministers mounted pressure on China to adjust the yuan’s value against the euro, ahead of a meeting of G7 finance ministers next week.

Eurozone finance ministers on 8 October urged China to adjust the yuan’s exchange rate, as pressure increases to act on the continued strength of the euro. The euro hit a historic high when it valued at 1.43 dollars on 1 October.

“In emerging countries with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments occur,” ministers said in a statement.

European Central Bank President Jean-Claude Trichet, Economic and Monetary Affairs Commissioner Joaquin Almunia and Eurogroup President Jean-Claude Juncker are set to travel to China this year to discuss monetary issues.

With this statement, the EU is joining the US in its criticism of China for keeping the value of the yuan, its currency, artificially low in order to boost exports, which has triggered the euro’s appreciation. However, EU finance ministers also voiced concerns about the undervaluation of the dollar and the yen. 

While France has repeatedly stated its concern over the effects of a continuously appreciated euro on the eurozone's external competitiveness, Germany, the Netherlands and Austria seem to be less troubled by the euro's recent high flight.

German Finance Minister Peer Steinbrück insisted on 8 October that he actually "preferred a strong euro".

Dutch Finance Minister Wouter Bos said at the meeting: "The whole idea of monetary union was to make a strong euro. Now that there is a strong euro I think we should be glad that others have confidence in our economy and that is something to be proud of."

Austrian Finance Minister Wilhelm Molterer stated that he was "happy" about the strength of the European economy.

Meanwhile, Socialist MEPs warned that the currency's strength, together with the financial markets crisis could hit growth and require coordinated action by governments. Socialist group spokesperson on economic and monetary affairs, Ieke van den Burg said: "Ministers cannot afford to take the view that the market crisis is only a problem for the banks. As the IMF has warned, it is a crisis that is about to hit government budgets and damage growth. We need firm action by ministers to prevent the crisis from deepening."

The European Trade Union Confederation (ETUC) has also called on EU finance ministers and the Commission to take action to avoid "brutal swings in the euro exchange rate". "It is too easy for policy-makers to say that a too expensive euro should be no problem if workers moderate wages. This approach would perhaps save European exports but it will certainly kill domestic demand and abort the recovery," ETUC Deptuy General Secretary Reiner Hoffmann said.

European employer association BusinessEurope President, Ernest Antoine Seilliere urged finance ministers to raise their voice and defend the euro area interests at the upcoming G7 meeting in Washington (see EURACTIV 04/10/07).

The Eurogroup meeting regularly unites the 13 eurozone finance ministers one day ahead of the Economic and Financial Affairs Council.

The meeting on 8 October also sought to agree a common European line in preparation for the meeting G7 on 19 October in Washington, which brings together finance ministers from the US, Japan, Canada, France, Germany, the UK and Italy.

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