German Chancellor Angela Merkel said she discussed the euro with Brazilian President Dilma Rousseff, as Rousseff warned of steps to avoid “artificial devaluation” in Europe and the U.S. from hurting Brazil’s economy.
“We had a very extensive discussion last night about the state of the world economy in general, about the situation of the euro, the duty to avoid global imbalances,” Merkel told reporters today in Hanover, Germany, where the leaders opened the Cebit electronics fair. “Brazil’s economic development is closely linked to what’s happening in the euro region.”
Germany has been at the forefront of calls for Group of 20 nations including Brazil to raise their contributions to the International Monetary Fund to help combat the euro-area debt crisis. G-20 officials meeting in Mexico City last month said they will reassess such calls in April once Europe strengthens its financial firewall against the crisis.
Asked whether Rousseff had pledged not to stand in the way of an increase in the IMF’s firepower that could be used to stabilize euro states, Merkel said “we didn’t discuss this point.” Rousseff said that she didn’t discuss a larger contribution from Brazil to the IMF.
“We are in favor of a bigger role for Brazil in the monetary fund,” Rousseff said. Brazil wants “a change in terms of the participation of emerging countries in the IMF board.”
Brazil’s Finance Minister Guido Mantega said in Mexico last month after meeting with his counterparts from Russia, India, China and South Africa that the so-called BRICS group of major emerging markets will only add more funding for Europe if its leaders follow “precisely to the letter” a 2010 agreement to give them a bigger say in how the Washington-based IMF is run.
Merkel recommitted to that agenda, saying that the matter will be discussed at the IMF’s spring meeting in Washington.
“In Germany and in Europe we’ve already declared the readiness to increase the quotas,” she said. “The IMF has undergone a quota reform at which the importance of emerging economies has increased compared with earlier times.”
Rousseff said that she had raised her concerns with Merkel over “the monetary expansion that has been taking place by some developed countries,” including the U.S. and in Europe.
Brazil’s economy saw its second-worst performance last year since 2003, the statistics agency in Rio de Janeiro said today, as higher borrowing costs and a currency that rallied to a 12-year high led it to underperform emerging-market peers China and India.
While the euro has gained 1.6 percent against the dollar this year, it is down more than 5.5 percent against the Brazilian real in the same period.
“I would like to make clear that faced with the artificial devaluation of currencies, Brazil will take measures,” Rousseff said. While she didn’t specify what action might be taken, she said it wouldn’t breach World Trade Organization rules. Any such steps will block devaluation from “leading to the deindustrialization of the Brazilian economy.”
Merkel said that she understood Rousseff’s concern and that both agreed protectionism must be avoided.