Sunday, May 18, 2008

Euro unity urged as dollar plummets

by Sid Verma

Top EU finance official voices concern as fears grow over trade imbalances

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Calls for eurozone economies to project a unified global position on the common currency are mounting, in the wake of heightened anxiety over the euro’s strength against the declining dollar as well as soaring global trade imbalances. “We need a single voice, strategy and position,” Joaquin Almunia, EU commissioner for economic and monetary affairs, told Emerging Markets in an interview yesterday. “As a logical consequence, there will be a higher representation of the euro.” Almunia added that in the future he hoped the eurozone will be represented at the IMF by one single seat while presenting a unified position on the currency in other financial institutions.

His calls for a stronger political representation of the euro was echoed last week by IMF managing director Dominique Strauss-Kahn who said the eurozone would benefit from a bigger political voice in international financial relations. His comments also come amid growing alarm among over the increasing strength of the euro against the US dollar and Chinese yuan. Speaking at the Brussels Economic Forum on Thursday, Strauss-Kahn said the euro was facing “a bigger share of the burden than it should have.” The former French socialist finance minister added that “the exchange rate regime of the renminbi is treated as a US/China bilateral issue even though it is as important to the euro area as to the US.”

But David McCormick, undersecretary for international affairs at the US Treasury, last night flatly denied that the US was monopolizing discussions with China on the issue of exchange rate regimes, crowding out eurozone interests. “I do believe that China’s currency is not a US issue, but an important global market economic issue and I believe our counterparts in Europe have expressed that,” McCormick told Emerging Markets at a press briefing yesterday. “You’ll see this reflected too in G7 statements. I don’t perceive it as a bilateral issue [between the US and China], I don’t think the Europeans do and don’t think the Chinese do,” the Treasury official said.

Analysts suggest US authorities are pursuing a policy of benign neglect towards dollar weakness to boost exports, while publicly chastising China for its undervalued currency. The euro has risen from $1.19 in January 2005 to $1.56 at the end of last week. Almunia said: “The US authorities have stressed that it is in their interests to have a strong dollar. They want to stress the fundamentals of the dollar are strong.” But the commissioner warned that if imminent action is not taken to reduce currency and trade imbalances it “would trigger more financial crises and new problems.” McCormick agreed with the sounded the alarm yesterday. “We believe that China needs to move more quickly towards a market based currency.”

Almunia argued that while the euro has been an economic success, it still lacks clout in the global arena. “It is the only currency out of the top three or four currencies in the world that has the peculiarity whereby the members of euro area – can have their own voice and particular strategies.” “The positions of the euro group in macro-economic dialogue at the global level needs to be clearly defined and stressed and all the members of euro area should stick to its positions.” Heralding the tenth anniversary of the currency, the Spanish commissioner argued the euro was a “pole of stability in the global economy.” But since “it is becoming currency of more and more citizens, we have to think of how to project our own interests in the world. We need clear initiatives and policies”.

Almunia, who has previously criticized French president Nicolas Sarkozy for blaming France’s economic woes on strength of the euro and for his appeals to the European Central Bank to lower interest rates, expressed confidence that common consensus was achievable going forward. “You will see more coherence in common position [of member states on the euro],” he said.

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Euro unity urged as dollar plummets

Top EU finance official voices concern as fears grow over trade imbalances

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