BRUSSELS: France insisted on Monday that eurozone finance officials should discuss the rising strength of the euro, but several ministers played down the issue and the G7 was expected to call for “market-determined” exchange rates.
French President Francois Hollande last week raised the possibility of political interference in exchange rate policy when he called for a medium-term target for the euro’s value, a move to counter its recent appreciation.
Arriving for a meeting of eurozone finance ministers in Brussels on Monday, French Finance Minister Pierre Moscovici reiterated Hollande’s message, saying the euro’s strength, which can hurt exports, should be debated.
“We will have a debate about exchange rates,” he told reporters as he arrived for the meeting. “The euro has appreciated strongly in recent months ...for positive reasons, because confidence is coming back in the euro zone.”
Germany has already rejected Hollande’s initiative, with the economy minister saying policies should focus on improving competitiveness rather than influencing the exchange rate, and other finance ministers also dismissed it on Monday.
“I find an artificial weakening unnecessary,” Austrian Finance Minister Maria Fekter told reporters, adding that exchange rates should be determined by the market, a view reiterated by Luxembourg’s finance minister.
“In my view the excitement about the euro is unjustified right now,” said Fekter.
After three years of debt-crisis during which many commentators and private sector economists fretted about the future existence of the European single currency, some officials are now openly worried about it being too strong.
The euro has risen about 13 per cent against the dollar since touching $1.21 in July last year, although it has come off recent highs since European Central Bank President Mario Draghi indulged in some gentle verbal intervention last on Thursday.
The call for a discussion of the euro’s strength comes as bond-buying policies of Japanese and US central banks have helped depress the value of the yen and the dollar and put upward pressure on the euro, raising the threat in some commentators minds of a “currency war”.
With net exports expected to be the major driver of economic growth in the developed world in the coming years, the weaker a country’s currency is, the cheaper its products are relative to competitors, making its exports more affordable.
But while policymakers are concerned about excessive currency strength in that environment, they are also aware that anything other than market-based exchange rates is likely to destablize the global currency exchange markets, creating much more damaging long-term effects.
To that end, the Group of Seven nations is considering issuing a statement this week reaffirming its commitment to “market-determined” exchange rates, two officials from the Group of 20 biggest economies said on Monday.
The officials, from different countries, told Reuters that if agreed, the statement could be released around the time that G20 finance ministers and central bankers meet in Moscow on Friday and on Saturday.
France is part of both the G7 and G20 and Moscovici said a common European position would help.
“We should have -I have insisted that this debate takes place -a coordinated approach between us that will allow for us to argue for exchange rate stability, especially within the G20,” he said.