Hollande Urges Euro Rate Target, Sparring With Germany, ECBJonathan Stearns and James G. Neuger
French President Francois Hollande called for government leaders to steer the euro’s exchange rate, becoming the most powerful European official to warn that the rising currency may deepen the recession.
Hollande broke with Germany’s hands-off policy on exchange rates and set up a potential clash with the European Central Bank by saying the euro area has to use the currency as an export-promoting tool just like the U.S. and China.
“We can’t let the euro fluctuate according to the mood of the market,” Hollande told reporters at the European Parliament in Strasbourg, France, today. “We have to act at the international level to assert our interests.”
The euro’s rise this month to a 14-month peak against the dollar and the highest in almost three years against the Japanese yen makes it harder for exporters to compete internationally at a time when the economy is struggling to shake off the debt crisis.
The 17-nation currency region slipped into recession last year and the European Commission predicts growth of a scant 0.1 percent in 2013. Unemployment was 11.7 percent in December, the highest since the euro’s debut in 1999.
Hollande came to office last May with a pledge to put more growth and less austerity into European crisis-management policy. In publicly fretting about the appreciating euro, the Socialist leader voiced concerns that were common with his center-right predecessors, Nicolas Sarkozy and Jacques Chirac.
“We have to determine for the medium term an exchange-rate level that appears most realistic, that is most in line with the state of our real economies,” Hollande said.
Less prominent political figures have been warning about the euro’s ascent. Luxembourg Prime Minister Jean-Claude Juncker called the exchange rate “dangerously high” on Jan. 15 and Belgian Finance Minister Steven Vanackere on Jan. 28 said “the risk is real” of a “currency war” with Japan.
The euro bought $1.3532 at 3:20 p.m. London time, close to the 14-month high of $1.3711 reached on Feb. 1. It was worth 125.84 yen, close to the 126.97 yen touched on Feb. 1, the strongest since April 2010.
Past calls for political management of exchange rates -- including by Silvio Berlusconi during his time as Italian prime minister -- have been rebuffed by countries like Germany and the Netherlands where inflation is a greater concern. Today was no different.
‘Weakening the Euro’
“The goal has to be to strengthen competitiveness instead of weakening the euro,” German Economy Minister Philipp Roesler said after meeting French Finance Minister Pierre Moscovici in Paris, according to Deutsche Presse-Agentur.
A broader index of 10 leading currencies bears out concerns that exchange rates are working against euro-zone exporters. The euro has risen 7.2 percent in the past six months, making it the top performer. The dollar has fallen 2.8 percent, the British pound 2.4 percent and the yen 20 percent over the same period.
The euro’s founding treaty gives governments the power to set “general orientations” on exchange rates, as long as this doesn’t interfere with the Frankfurt-based central bank’s control of inflation.
In 1997, the governments pledged to use this power only “in exceptional circumstances” and have yet to publicly invoke it. Hollande didn’t say how the governments would enforce an exchange-rate target and said politicians don’t have the authority to tell the independent ECB what to do.
The central bank has had a hand in boosting the euro, by containing the debt crisis with an offer of theoretically unlimited purchases of government bonds and with extra lending to commercial banks.
Hollande said that as European countries cut costs and wages to become more competitive, it is only logical to seek to boost the euro zone’s overall competitiveness against the outside world.
Europe’s crisis-management policy is “asking countries to improve internal competitiveness while external competitiveness deteriorates due to pressure from the exchange rate,” he said.