Eurozone finance ministers on Monday ratcheted up pressure on China to adjust the value of the yuan although they struggled with differences over the strength of the euro.
The ministers, gathered in Luxembourg, thrashed out a common position on exchange rates to bring to a meeting next week in Washington of finance chiefs from the G7 richest countries.
While sticking to their usual well-worn statement describing "excessive volatility" on foreign exchange markets as "undesirable," this time they also singled out China with a call for action to adjust the yuan's exchange rate.
PHOTO: AFP
"In emerging countries with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments occur," the ministers said in an agreed statement.
China regularly comes under fire for artificially keeping down the value of its currency in order make its exports cheaper on international markets, which also has the effect of lifting the value of the euro.
Ministers also agreed to dispatch a delegation of eurozone powerbrokers to China to raise their concerns about exchange rates face-to-face with Chinese authorities.
ECB president Jean-Claude Trichet, EU Economic Affairs Commissioner Joaquin Almunia and chairman of the Eurogroup of finance ministers Jean-Claude Juncker would make the trip "by the end of this year," Juncker said.
But while China was specifically in the crosshairs, the ministers also took aim at the US and Japan in a common message that the eurozone is to deliver at the G7 meeting.
"First point China, second point dollar, third point yen," said Juncker, the chairman of the meeting.
"Concerning the dollar, we have noted with great attention that the US authorities have reaffirmed that a strong dollar is in the interest of the US economy," the ministers said in the statement.
On the yen, the ministers voiced concern that it too was undervalued and said that because Tokyo acknowledged that Japan was on a "sustainable growth path" that that "should be recognized by market participants."
With the euro on a record-smashing run, some eurozone members are becoming increasingly impatient for China, Japan and the US to take more action to strengthen their currencies.
The euro has risen more than 20 percent against the US dollar and yen since its launch in January 1999, and the appreciation has been around 10 percent in just the last 12 months.
China has allowed its currency to rise marginally versus the US dollar over the past two years but has let it slide against the euro in equal proportion, compounding the feeling that the euro zone is carrying the can for currency mismatches.
"We note that the euro is playing its role for an orderly reduction of the imbalances," the ministers said.
While a rising euro can help limit the cost of oil, which is priced in dollars, and thus curbs inflation, it makes it harder for exporters to compete on price in world markets, where the yuan also sets a benchmark for many others in Asia.
France has complained loudly in recent weeks about the strength of the euro, with clear support from Italy, but Germany, the world's top exporter, kept its distance.
German Finance Minister Peer Steinbrueck did so again on Monday, telling journalists as he entered the Luxembourg meeting: "I prefer a strong euro."
His Dutch and Austrian colleagues took a similar line.
That jarred with a campaign being waged by French President Nicolas Sarkozy, but French Finance Minister Christine Lagarde, regularly reduced to the role of emissary, said she was happy with the outcome of the talks.
"After good debates we came to final conclusions that we shared and that we all support in anticipation of the G7 meetings, so that is good, that is excellent," she said.
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