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Wed, Nov 17, 2004 - Page 12 News List

EU worried about euro

APPRECIATION Europe's finance ministers have expressed concern that a continued rise of the euro against the dollar will dampen export-led growth


European finance ministers expressed concern at "excess volatility" in currency rates late Monday in talks that also took in the vexed question of reforms to the eurozone's tattered budget rules.

Ministers from the 12-nation eurozone met as evidence accumulates that the euro's record-breaking appreciation against the dollar is starting to undermine the area's already struggling economy.

"As far as the exchange rate is concerned, ministers agreed that excess volatility and disorderly movements in exchange rates are undesirable for economic growth," Dutch Finance Minister Gerrit Zalm told a news conference.

"In this context, recent sharp moves of exchange rates are unwelcome," the eurozone's current chairman added, echoing a statement by the Group of Seven (G7) nations in February.

The euro rose above US$1.30 last week for the first time since it began trading on foreign exchange markets in January 1999.

The impact has already been seen with provisional figures on Friday showing that eurozone growth was up a mere 0.3 percent in the third quarter from the previous three months.

The dollar firmed a touch on Monday after US Treasury Secretary John Snow deflected suggestions of benign neglect of the currency by the US administration, saying Washington backed a strong dollar.

"Currency values are best set in open and competitive exchange markets," Snow added in Dublin.

Zalm said in response: "The US policy on a strong dollar would be helpful to prevent sharp movements in exchange rates, which are unwelcome."

But EU economic commissioner Joaquin Almunia blamed "longstanding imbalances in the US" for eroding the dollar's worth. The US is running huge current account and budget deficits.

European Central Bank (ECB) president Jean-Claude Trichet has already expressed alarm at the "brutal" rise of the euro, which threatens to strangle export-led growth in Europe.

But Zalm, pressed on what action the eurozone countries might take, said: "We didn't ask the ECB anything. As a central bank, it's never wise to promise action or to promise inactivity."

While the currency markets provide cause for concern, the eurozone ministers acknowledged better news on the oil markets, after a slippage in prices from recent record highs.

But in another warning to France, which has pressed ahead with unilateral measures to benefit sectors such as truckers hardest hit by the oil rally, the ministers said "distortionary policy interventions" should be avoided.

And where "short-term targeted measures are taken to alleviate the impact of higher oil prices on the poorer sections of the population, they should not compromise the overall policy framework agreed by the euro group," they added.

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