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Euro’s Strength on Agenda for Finance Ministers E.U. Ministers at Odds Over Strength of the Euro
(about 5 hours later)
BRUSSELS — Concern over the euro came to the fore on Monday ahead of a meeting of finance ministers of the countries using the currency. But this time, with the union’s recession continuing, the topic was the strength of the euro rather than its many weaknesses. BRUSSELS — Concern over the euro moved to the forefront Monday as finance ministers of the countries using the currency held their monthly meeting. But this time, with the European Union’s recession continuing, the topic was the strength of the euro rather than its many weaknesses.
As confidence has grown that the European Union will be able to manage its sovereign debt crisis, the euro has made significant gains against the dollar and other foreign currencies. That is making it more expensive for Europe’s trading partners to buy its exports and could hamper growth. As confidence has grown that the Union will be able to manage its sovereign debt crisis, the euro has made significant gains against the dollar and other foreign currencies. That is making Europe’s exports more expensive, a factor that could hamper growth.
On Monday, France, which traditionally favors market intervention, renewed its calls for remedial steps, like establishing a target level for the euro’s value. On Monday, France, which traditionally favors market intervention, renewed its calls for remedial steps that could include establishing a target level for the euro’s value.
Exchange rates need “to reflect the economic fundamentals of our economies of the euro zone,” Pierre Moscovici, the French finance minister, said ahead of the regular monthly meeting of so-called Eurogroup ministers. “Exchange rates should not become subjected to moods or speculation.” Exchange rates need “to reflect the economic fundamentals of our economies of the euro zone,” said Pierre Moscovici, the French finance minister. “Exchange rates should not become subjected to moods or speculation.”
Mr. Moscovici said he would make the case for coordinated action to keep a lid on the value of the euro in order to present the plan, possibly at a meeting of finance ministers and central bankers of the Group of 20 nations to be held in Moscow at the end of the week. Mr. Moscovici made the case to other members of the so-called Eurogroup of finance ministers, asking for coordinated action to keep a lid on the value of the euro currency. Before the meeting, Mr. Moscovici said he wanted the Europeans to present a common plan later this week during a meeting of finance ministers and central bankers of the Group of 20 nations to be held in Moscow.
The euro was trading at $1.339 on Monday after falling to the low $1.20s in 2012. In a news conference after Monday’s meeting, Jeroen Dijsselbloem, the president of the Eurogroup, who oversees the agenda for the monthly meetings, said the euro exhange rate had been discussed. But like some German officials, he appeared to give the matter short shrift, saying that the forum for further discussion should be the G-20 meeting in Moscow.
But some ministers suggested intervention would be wrongheaded. "That's where exchange rates, if anywhere, should be addressed," Mr. Dijsselbloem said.
“This is mainly decided by the market,” Maria Fekter, the Austrian finance minister, said in response to a question on the euro strength as she arrived at the meeting. “I find an artificial weakening unnecessary.” Mario Draghi, the president of the European Central Bank, warned last week that the strength of the euro could weigh on the ability of Europe to pull out of its economic doldrums. Those comments were enough to send the euro down sharply against the dollar — to $1.36 from $1.34 — and the yen.
The French position is also likely to irritate Germany, where officials suggested last week that intervention on exchange rate markets was a poor way to improve competitiveness. The euro was trading at $1.339 on Monday after falling to the low $1.20s last year.
The renewed French push for greater scope to control the levers of the European economy immediately met stiff resistance from a senior German official, who decried the initiative as a poor substitute for policy overhauls.
Jens Weidmann, the president of the German central bank, the Bundesbank, suggested Monday that countries like France were simply diverting attention from the need to make their economies more competitive.
“Only governments can solve these problems, the central banks cannot,” he added. “In this respect, the discussion about a supposed overvaluation of the euro’s exchange rate simply deviates from the real challenges.”
Mr. Weidmann also warned that an exchange rate policy aimed at weakening the euro would “in the end result in higher inflation.”
A number of ministers agreed Monday that intervention would be wrongheaded.
“This is mainly decided by the market,” Maria Fekter, the Austrian finance minister, said in response to a question on the strong euro as she arrived at the meeting. “I find an artificial weakening unnecessary.”
The strong euro means some European exports, like cars and wine, become more expensive abroad, putting European producers at a disadvantage against foreign competitors. But there are also positive effects. Imports, particularly oil, become less expensive for Europeans, which helps stimulate the economy.The strong euro means some European exports, like cars and wine, become more expensive abroad, putting European producers at a disadvantage against foreign competitors. But there are also positive effects. Imports, particularly oil, become less expensive for Europeans, which helps stimulate the economy.
Mario Draghi, the president of the European Central Bank, warned last week that the strength of the euro could weigh on the ability of Europe to pull out of its economic doldrums. Those comments sent the euro down sharply against the dollar and yen. The push for intervention by the French is unlikely to make much real headway. Instead, it may be an illustration of the way that economic policies in the euro area are a result of a back-and-forth between states like France and Germany.
Jeroen Dijsselbloem, the president of the Eurogroup who oversees the agenda for the monthly meetings, said that the strength of the euro could be one of the main subjects discussed on Monday evening. But he also said the meeting was likely to be a short one in order to allow ministers to attend a farewell dinner for Jean Claude Juncker, the prime minister of Luxembourg who stepped down last month as president of the Eurogroup. “The French have always believed the single currency should be put to the service of exports,” said Mujtaba Rahman, an analyst with the Eurasia Group, a political risk research and consulting firm. “But it’s not a debate they can win, so they are most likely using this to win concessions on other baby projects, from the pace of its own fiscal consolidation, to a fiscal capacity to a short-term mutualized debt instrument.”
How to handle a bailout for Cyprus was also likely to be discussed by ministers on Monday evening. Mr. Rahman was referring to the desire in France, despite its poor economic indicators, to maintain control over the speed with which it must tighten its belt under E.U. rules, and to create pools of shared European funds and bonds backed by the most prosperous countries of the euro area.
Among the potentially explosive issues is whether to force depositors in Cyprus, including wealthy Russians, to take losses on their holdings to help reduce the burden of recapitalizing and restructuring Cypriot banks. The finance ministers on Monday also discussed how to handle a bailout for Cyprus. Among the potentially explosive issues is whether to force depositors in Cyprus, including wealthy Russians, to take losses on their holdings to help reduce the burden of recapitalizing and restructuring Cypriot banks.
But Vassos Shiarly, the Cypriot finance minister, bluntly rejected that scenario on Monday. But Vassos Shiarly, the Cypriot finance minister, bluntly rejected that possibility on Monday. “I would say that the bail-in of depositors is a grossly exaggerated possibility,” he said. “We will not accept it under any circumstances.”
“I would say that the bail-in of depositors is a grossly exaggerated possibility,” Mr. Shiarly said. “We will not accept it under any circumstances.” No agreement with the Cypriot government in Nicosia is expected until after the departure of President Demetris Christofias, a Communist, who will not be running in elections scheduled for this month. International creditors want to wait to negotiate a rescue program with the winner, who is likely to be Nicos Anastasiades of the Democratic Rally, a center-right party.
No agreement with the Cypriot government in Nicosia is expected until after the departure of President Demetris Christofias, a Communist, who will not be running in elections scheduled for later this month. On Cyprus, Mr. Dijsselbloem called for a rapid analysis by an independent consultant of whether the island was properly implementing rules against money laundering. Politicians in countries including Germany have made clearing up such suspicions a pre-condition for a bailout.
International creditors want to wait to negotiate a rescue program with the winner, who is likely to be Nicos Anastasiades of the Democratic Rally, a center-right party. Asked about the possible penalization of Cypriot depositors, Mr. Dijsselbloem said “all elements” would be under discussion as part of a bailout package for the island that should be ready sometime in March. Referring to the use of the European bailout instrument, the European Stability Mechanism, Mr. Dijsselbloem suggested that he wanted private-sector involvement in any future direct recapitalization of banks to avoid “additional strain” on national budgets of contributing nations.