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Europe concerns over euro rise Original Source Link: (May no longer be active)
http://www.forbes.com/home_europe/newswire/2004/01/12/rtr1206991.htmlhttp://www.forbes.com/home_europe/newswire/2004/01/12/rtr1206991.html
WRAPUP 1-Central bankers quiet on FX as Europe concerns rise
Reuters, 01.12.04, 10:10 AM ET
By Stella Dawson
BASEL, Jan 12 (Reuters) - Europe ramped up efforts to calm the soaring euro on Monday even as the world's top central bankers expressed no concern that volatile currencies are a risk to the building global economic recovery.
Europeans told a Group of 10 meeting of central bankers from the world's largest industrial nations they are concerned about sharp foreign exchange moves, while French Prime Minister Jean-Pierre Raffarin said officials must act quickly to bring the euro-dollar into line.
Japan's top central banker also said volatile currencies are a risk to the global economy.
But Jean-Claude Trichet, president of the European Central Bank and G10 chairman, said that foreign exchange risks were not part of the G10 discussion on Monday when central bankers conducted their bi-monthly health check on world growth.
"It was not discussed as a risk," Trichet said after the G10 talks in the Swiss city of Basel.
The absence of a common front on currencies from the G10 meeting suggests that the United States is unwilling yet to halt the dollar, which has fallen 18 percent against the euro over the past year. Analysts say this raises questions about whether the Group of Seven finance ministers can craft a new currency accord at their next meeting in early February.
A source from the Group of Seven industrial nations told Reuters that the G7 finance ministers were likely to discuss global tensions arising from developments in foreign exchange markets at the February meeting.
Europeans are pressing hard and placed the issue firmly on the table at the G10, even toughening their language somewhat from last week.
France and Germany have expressed fears that the soaring single currency will hurt the euro zone's economic recovery, which depends heavily on competitive exports.
"There was a mention by Europe that excess volatility and brutal moves were not welcome and not appropriate," said Trichet. "We are concerned. We are not indifferent."
Likewise, Bank of Japan Governor Toshihiko Fukui said that unstable foreign exchange is worrisome for every country. "Foreign exchange is seen as a risk factor by policymakers in relation to the global imbalance issue," he told reporters.
This hardening by Europe of its stance against the dollar's dramatic drop took some steam out of the euro's rally. The single currency slipped a full cent to $1.2799 after hitting a new record high against the dollar at $1.2898 earlier in the day. Yields on euro zone government bonds pushed higher.
But analysts said the euro's retreat may prove short lived and only a breather after its heady ascent of more than 12 percent in the past few months, because the United States seems unconcerned by rapid currency moves.
"Europe would prefer that the U.S. express some interest in stabilising the dollar," said Stephen Englander, chief currency strategist at Barclay's Capital in New York.
"But from the U.S. point of view, they simply don't see it in their interest to do that. There is no downside for the U.S.," he said.
For the Bush administration heading into a presidential election, the dollar's decline is a blessing. It quietens complaints from U.S. manufacturers that they cannot compete with the flood of cheap imports from Asia and it helps to boost exports, lifting overall economic growth.
Europeans, meanwhile, are bearing the brunt of the dollar's decline, particularly since many Asian countries are buying up dollars to weaken their own currencies and protect exports.
France, a G7 member, is especially vocal that it hurts growth prospects, with Raffarin echoing complaints from President Jacques Chirac last week.
"Instability is neither in the interests of the United States nor in the interest of Europe," Raffarin told reporters on Monday. "We must together, quickly, find the ways to ensure parities that are more compatible with economic reality."
Belgium's Prime Minister Guy Verhofstadt and Germany's Economy Minister Wolfgang Clement also expressed concerns last week, calling for European Central Bank interest rate cuts to offset euro strength and keep European growth on track.
But Trichet said the G10 central bankers noted that financing conditions are plentiful to support a firming global recovery. They see risks to the steady improvement in world growth as balanced, he said.
Copyright 2004, Reuters News Service
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