A top European Central Bank official on Tuesday defended the way the bank and ministers share responsibility for the euro, rebuffing calls for finance ministers to have more influence over foreign exchange policy.
ECB Executive Board member Lorenzo Bini Smaghi also called for finance ministers to coordinate their message on currency matters better, saying they should present a united front.
In a speech to the Euro50 Group, he said the "division of labour" between the ECB and euro-zone finance ministers in the Eurogroup worked more efficiently than the system in the United States and Japan, where the finance ministry is responsible for currency policy and intervention.
To be effective, FX intervention needed backing from domestic policy especially interest rates, to be co-ordinated with other central banks and to be well explained to markets.
"The three above-mentioned conditions are best met if both the finance ministry and the central bank are involved in the definition of the policy," Bini Smaghi said.
France is pressing for the euro to be used as an instrument to promote economic growth. Last month it abandoned plans to alter the ECB's mandate as part of a new European Union treaty. But Paris is still pushing for what it terms improved economic governance in the euro zone and more input for finance ministers on currency policy.
French President Nicolas Sarkozy, who has complained the euro is undervalued and said it should be used to promote growth and jobs, will attend EU finance ministers' meetings next week.
Under the current system, finance ministers define the exchange rate regime in consultation with the ECB and European Commission, and they can lay out a general orientation for foreign exchange policy, although they have never set guidelines on price levels. The ECB is responsible for FX intervention.
This joint mandate was not expected to be changed in talks on the details of the EU treaty, Bini Smaghi said. EU leaders agreed on the outlines for the new treaty on June 23 and Portugal, which holds the EU's rotating presidency, hopes to finalise a text by mid-October. In his speech, Bini Smaghi repeated his call for a single European voice to represent the euro currency on international bodies such as the Group of Seven meetings of finance ministers and central bankers.
He called it a "pretext" to say more EU political integration was needed before that could happen and cited the agreement to have one EU foreign minister. "Could this decision also represent a way forward in the field of the external representation of the euro area?" Bini Smaghi said.
Better co-ordination among finance ministers on currency matters is needed, he said, noting contradictory public statements, for example in the lead-up to the Essen Group of Seven meeting in February, which tended to weaken the euro zone's position.
Some policymakers expressed concern about the strength of the euro, especially against the yen, and some said it was appropriate. "These differences of opinion did not ultimately contribute to a strengthening of the yen," he said.
"It is my opinion that the euro area is fully equipped to manage its own currency but better discipline is required in the preparation of the euro area's position to ensure a consistent message is sent to its partners." Bini Smaghi did not touch on euro zone interest rates, ahead of a rate-setting meeting on Thursday when the ECB is expected to leave credit costs on hold at 4 percent.
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