EU leaders worried about strong euro

15 Mar, 2008

European Union leaders voiced concern on Friday about volatile exchange rates after the euro hit a new high against the dollar this week and Germany said it would discuss it with the United States. "Excessive volatility and disorderly movements of exchange rates are undesirable," the 27 leaders said in a statement at the end of a two-day summit.
Although they repeated word-for-word the message of euro zone finance ministers two weeks ago, it was the first such statement on exchange rates by EU leaders, Eurogroup chairman Jean-Claude Juncker said. EU leaders meet four times a year.
The summit did not discuss in detail how to tackle the exports-harming rise of the euro, which traded above $1.56 on Thursday, but some leaders expressed their anxiety and a top business group demanded international talks on the issue.
"This is the big problem we are facing... very soon we will need to address these issues in a strong way," said outgoing Italian Prime Minister Romano Prodi, whose country's consumer goods sector is especially vulnerable to currency swings.
German Finance Minister Peer Steinbrueck said he would discuss the weak dollar and what preventive measure to take in talks with US authorities next month. "I am very keenly awaiting my discussions in the US after Easter on how the economic situation is assessed and what specific measures will be taken," he told reporters. EU finance ministers had a separate meeting during the summit.
Juncker and other leaders repeated an earlier statement of European Central Bank President Jean-Claude Trichet, who had voiced satisfation with US assurances that a strong dollar is in its interest.
SHUNNED GREENBACK:
However, those assurances have brought no concrete results as investors continue to shun the dollar on fears of a recession in the United States following a crisis in its subprime mortgage sector. The euro hit a new all-time high at $1.5688 on Friday before easing to $1.5644, unchanged from late Thursday. Juncker said investors were behaving in an irrational way by focusing on short-term bad signals from the US economy, which he said may be on the verge of recession but has very good medium-term prospects.
"Financial markets, instead of behaving in too irrational a way, should focus on the medium-term perspective," he said. He also cautioned against a "hyperactive" reaction, playing down suggestions that the ECB should actively intervene to tackle the euro's rise. The European economy would cope with the US slowdown, he said, although growing inflation in the 15-nation euro zone caused concern.
Annual inflation in the euro area hit a new record high of 3.3 percent in February, the EU's statistical office said on Thursday, revising up a previous estimate of 3.2 percent.
The European Commission expects euro zone growth to slow to 1.8 percent from last year's 2.7 percent, but some analysts caution the figure could be lower if the global credit crunch proves more stifling for the economy than now thought.
The main European business lobby, worried a strong euro is undermining their export, called on Thursday for international talks to stabilise foreign exchange markets. Belgian Finance Minister Didier Reynders said the euro's strength meant Europe was better able to absorb the impact of rising oil prices, and the real problem was the weak dollar.

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