European companies are ready to accept the euro's rise if it is the result of market forces, but have difficulty coping with exchange rate volatility and currency manipulation, Europe's top business group said.
Philippe de Buck, Director General of BusinessEurope, an organisation representing 20 million European firms, said companies are not yet complaining about the strength of the euro, which rose 12 percent to above $1.4 in mid-October.
The euro also strengthened 9.4 percent against the Japanese yen in the month to mid-October. "We are used to living with a stronger euro," de Buck told Reuters in an interview on the eve of a European Union summit that will hammer out a message to the leaders of the G20 biggest developed and developing economies. "We have also warned that there are some limits, when we were close to $1.6 we have certainly passed the pain threshold," he said.
He said that more than the level of the exchange rate, it was the speed with which it had changed that posed a problem.
"What is important is not necessarily the level of the euro. For us, European businesses, there are two things: firstly the volatility, the ups and downs, because this is very difficult to manage for companies," he said. "Secondly it is of course the manipulation of currencies, and that we see starting to happen, be it in Japan, or be it in the US," he said.
Japan intervened on the market to weaken the rising yen to protect its exports and the United States raised the possibility of further quantitative easing of monetary policy, which sent the dollar sharply lower.
Draft conclusions of the EU summit on Thursday showed Europe would call on other in the G20 not to use exchange rates to gain competitive advantage. "Conclusions are always compromises, it is what they say in the meetings that is important," de Buck said, adding the leaders should reinforce the message renouncing competitive devaluations agreed on by G20 finance ministers last week.
De Buck, who will meet EU leaders on Thursday to deliver his message, said he would ask them to keep the pressure on countries to consolidate budgets because there would be no economic growth without sound public finances. EU leaders will also discuss the option of changing the EU treaty, the 27-nation bloc's main law, to accommodate the possibility of creating a permanent mechanism for crisis resolution which could involve a default of a euro zone country.
De Buck said treaty changes were lengthy affairs, while the EU needed workable solutions quickly.