Eurozone finance ministers say that there is no need to act on the recent surge of their currency against the US dollar despite French fears that the current situation could dent economic growth.
The euro’s steady rise has been partially fuelled by speculation that the European Central Bank (ECB) will raise interest rates faster than its counterparts in the US and Japan.
This strong appreciation has led economists and business leaders to speculate that the ECB should call a halt to its cycle of interest-rate increases next year. But ECB President Jean-Claude Trichet has signaled that the bank is poised to raise borrowing costs in December, for the sixth time this year, from 3.25% to 3.50%.
France’s economy ground to a halt in the third quarter of 2006 after a solid performance in the three previous months; the country is increasingly anxious to act against the appreciation of the euro, which it says is hurting exports.
A number of economists agree that too strong a euro could slow economic growth in the eurozone by up to 1% next year by lowering the region’s competitiveness.
They say that the ECB’s monetary tightening will be felt even more strongly in 2007, when the current economic upturn in Europe is likely to lose momentum, due to the global economy’s downturn, high oil prices and strong budget consolidation measures in Germany and Italy (see EURACTIV 25 October 2006).