Tuesday, September 7, 2010

Eurozone finance ministers and the International Monetary Fund see the euro currency as too highly priced, Eurogroup chief Jean-Claude Juncker said.

Speaking after a meeting of the 16 countries that use the single currency, also attended by the IMF’s Europe director Marek Belka, Juncker said they were all agreed that the “euro is overvalued”.

“We are in agreement with him when he says that the euro is overvalued and that a certain number of adjustments are desirable,” he said, underlining that the unnatural strength of the euro was particularly the case when compared to China’s yuan.

“We see it as abnormal that a fast-growing economy [China] devalues its currency in relation to a currency zone where growth performance is far less positive,” he said, citing forecasts for eight per cent annual growth in Chinese gross domestic product.

The European Commission is forecasting eurozone growth of 0.7 per cent in 2010 and 1.5 per cent in 2011.

On Tuesday, the euro moved higher against the dollar - to which the yuan maintains a de facto peg - as investor appetite for risk returned on the back of positive data from China, the US and Europe and as fears eased of a Dubai default.

The single European currency in late-day trade was at $1.5094  after $1.5005 late Monday in New York.

According to French President Nicolas Sarkozy, at that level, “how do you expect us to sell planes to the United States?”

Speaking earlier in the day, Sarkozy said today’s “multipolar world” should have a “multipolar monetary system”.

Juncker met with Chinese premier Wen Jiabao on Sunday, along with European Central Bank chief Jean-Claude Trichet and outgoing EU economic and monetary affairs commissioner Joaquin Almunia.

Luxembourg premier Juncker, set to be voted in for a new two-and-a-half mandate as eurogroup leader in January, said they were “not looking for an abrupt change in Chinese monetary policy”.

Rather, he said, they explained to Jiabao, joined by the Chinese central bank chief and his finance minister, that Europe wanted to see a “gradual” realignment.

“We were of the opinion that an appreciation of the yuan compared to the euro was desirable to reduce the global disequilibrium we observe,” Juncker added. He said Chinese citizens would enjoy greater purchasing power if Beijing took back “control over its monetary policy”. He added: “Our Chinese friends don’t see it the same way, that’s hardly a surprise but we were determined to articulate our point of view to them.”

Wen Jiabao on Monday said international pressure over China’s currency policy was “unfair” after Trichet told reporters that the Europeans encouraged Beijing to take “a more flexible policy”.

The yuan’s exchange rate is one of the thorniest trade issues between China and the EU.

When Beijing officials talk about keeping the yuan “stable”, it typically refers to maintaining its current value.

The Chinese currency has been effectively pegged to the US dollar since mid-2008, and Europe fears the euro’s resultant rise against the yuan will hurt EU exports to China and slow the continent’s economic recovery.

Juncker up for new term
The man who heads the 16 countries that use the euro currency has announced that he wants a new, two-and-a-half year mandate in charge.

Luxembourg Prime Minis-ter Jean-Claude Juncker, Europe’s longest-serving national leader, will pre-sent himself for re-election by his peers in January after missing out on his bid to be the EU’s first president.

If elected, the job, formal-ised under the bloc's reforming Lisbon Treaty which entered into force on Tuesday after years stuck in a logjam of referendums and opt-outs, will see Juncker guide monetary policy through until 2012.

Juncker is so far unopp-osed, and said both French finance minister Christine Lagarde - a runner in the event of Juncker acceding to the top Brussels job claimed by then Belgian premier Herman Van Rompuy - and Germany's Wolfgang Schauble had given him their backing.

“At this point, there are no other candidates... there was a broad agreement on the proposition I put forward,” Juncker said.

Juncker was first placed in charge of the group in January 2005 and won a new two-year mandate in 2008, which was not due to expire until later next year.

French President Nicolas Sarkozy was said by diplo-mats to have blocked Juncker’s bid for EU president, Paris having accused Juncker of being too slow to react in late 2008 to the onset of the global financial crisis.