BRUSSELS: Dutch Finance Minister Jeroen Dijsselbloem chairs his first eurozone meeting on Monday, taking up a difficult debt bailout for Cyprus amid concerns that recent gains in the euro may further dampen the struggling economy.
The debt crisis Dijsselbloem inherits has eased greatly since the European Central Bank vowed last year to intervene in the markets to tame borrowing costs and EU leaders agreed tough steps to bolster the euro’s defences.
But after months when it seemed the single currency’s future was in doubt, the euro has now risen sharply, sparking fears it could make eurozone exports less competitive and so undercut badly needed growth.
Dijsselbloem said the 17-nation eurozone would likely examine the issue in a general way.
“It might be a subject at the Eurogroup meeting, quite right,” he said on arrival for this afternoon’s talks, starting 1400 GMT. “We will discuss as usual the economic state in the eurozone and the issue might rise there.” Asked if the eurozone needed an exchange rate policy, as suggested by France, he said: “I certainly won’t comment on that now; we will see whether it comes up.”
French Finance Minister Pierre Moscovici called last week for a debate on the euro’s exchange rate and wants the eurozone to consider setting a target level, which the ECB would then have to defend.
“Exchange rates must reflect economic fundamentals ... (they) must not be subject to the whims of speculators,” Moscovici said on his arrival on Monday.
“I think that we ought to argue at the international level for a coordinated approach,” he said.
But Germany, Europe’s paymaster, and the ECB are uncomfortable with such talk given that the central bank’s mandate is to ensure price stability, not manage the forex markets.
“For Germany a strong euro is a sign of returning confidence in the euro,” one EU diplomat said, adding that “a weaker euro is not constructive if we want to gain competitiveness.”
Dijsselbloem said ministers would try to make progress on Cyprus but that with presidential elections there shortly, a final decision would not be made until March. Cyprus has asked for a bailout of about 17 billion euros ($23 billion), equal to its annual economic output, but there are deep misgivings about its banking system and money laundering.
At the same time, there are serious concerns about letting Cyprus fail as that could badly compromise the credibility of the euro and threaten the recent progress made.
Asked about reports that some private creditors would controversially see their investments written down as part of a Cyprus deal, Dijsselbloem said ministers will “look at the various instruments we might have to use. Dijsselbloem has several other difficult issues on his plate to contend with — continued weak growth and political uncertainty ahead of elections in Italy and Germany.
Ministers will also review progress on the key measures agreed last year — a single regulator for the banks and the working of the European Stability Mechanism, the bloc’s defence back-stop.
Officials say ministers will also honour respected former eurogroup head Jean-Claude Juncker of Luxembourg who served for eight years, stepping down in January after overseeing a difficult overhaul of the euro’s shaky foundations. The 17 eurozone finance ministers are joined by their 10 non-eurozone colleagues for a meeting on Tuesday.