The head of the IMF Dominique Strauss-Kahn believes the real problem of the euro, as well as being overvalued, is the all powerful position of the European Central Bank. In Monday's edition of Le Monde, Strauss-Kahn said "the problem of the euro is that the European Central Bank, which has worked well to contain inflation, is all powerful.
"There is no counterweight in the shape of a real European finance minister who would be tasked with ensuring growth," he told the newspaper. There have been persistent calls, especially in France, for the ECB to cut interest rates to bolster a slowing economy, but the bank has insisted that inflation remains the main threat and lending costs must remain high as a result.
France has also led calls for politicians to have more influence over the ECB's decision-making. Strauss-Kahn said that while the Chinese yuan and the Japanese yen were undervalued the euro was overvalued and the dollar in between.
"We note with pleasure that the Chinese authorities accept increasingly a more realistic value for the yuan, in their own interest," he said, adding that redressing current global imbalances was not dependent on just one country. Turning to the US subprime home loan crisis and subsequent global credit squeeze, Strauss-Kahn said the situation was serious.
"If the subprime crisis and the potential problems with the American bond re-insurers impact the economy more seriously by undercutting confidence and consumption in the United States, then the whole world will have a price to pay." He said both the US Federal Reserve and ECB had launched a first line of defence by providing liquidity to the banking system and he would suggest a second.
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