French President Nicolas Sarkozy is "happy" that the debate on the level of the euro is open, presidential spokesman David Martinon said Friday at a news conference.EU finance ministers may either do nothing significant in response (the likely outcome), or cook up some beggar-thy-neighbor strategies of their own. In all fairness to the EU, it's been the US following a de facto policy of "let it go" and the Chinese one of "keep it weak." What's a customs union to do? From the Associated Press:
Referring to statements in the past weeks by several European leaders, including Italian Prime Minister Romano Prodi, Belgian Finance Minister Didier Reynders, European Union Commissioner for Economic and Monetary Affairs Joaquin Almunia and Euro Group President Jean-Claude Juncker, Martinon said: "We have recorded these declarations as a positive contribution a this necessary debate...The debate is open."
Finance Minister Christine Lagarde said in an interview published Tuesday she will work with her European counterparts to organize a common front on the problems stemming from the level of the euro.
European Union finance ministers open two days of talks Monday to discuss the United States' slowing economy, feeble dollar and massive current account deficit as major problems for the EU and the rest of the world.
Europe is starting to feel the bite as the U.S. dollar plummets, making French wine, Italian fashion and German cars expensive purchases for the EU's main export market in the U.S.
Last week, the employers federation BusinessEurope said that, by crossing 1.40 against the U.S. dollar, the euro exchange rate had reached a "pain threshold" for European companies. It also complained the euro was appreciating too fast against the Chinese yuan and Japanese yen.
While echoing their concern, the finance ministers of the 13 euro-zone nations will reiterate Europe is an innocent victim of others and that the euro-dollar exchange rate issue is part of a broader set of problems triggered by China's trade surplus and America's huge debts that require concerted steps to undo.
Luxembourg's prime minister, Jean-Claude Juncker, set the tone last week when he said the Europeans should not have to bear the consequences of other countries' inaction.
Finance ministers from all 27 EU nations on Tuesday will lift a caution for London that was imposed when it ran a budget deficit above the EU's recommended 3 percent of gross domestic product. The recent economic surge should allow Britain to cut that to 2.4 percent in the 2008-09 financial year.
The Czech Republic will see its budget warning stepped up, as it is told to cut its deficit to zero within five years. This year, the deficit is likely to overrun a forecast of 3.3 percent as it counts the cost of higher social welfare spending by the previous government. The country needs to get well below 3 percent to join the euro as Prague plans for 2012.
Since the currency's launch in 2002, the European Commission has urged the nations that use the euro to do more to coordinate their economic moves and cut spending.
It says the euro is already paying off because the euro-zone has become more resilient to outside shocks, such as last year's oil price spikes.
But the possibilities of a worsening U.S. slowdown, higher oil prices and tighter borrowing conditions could all risk derailing Europe's first bloom of growth after several years of stagnancy.
The EU executive sees a more uncertain future in the months ahead, downgrading a forecast for the economy to grow this year from 2.6 percent to 2.5 percent after global financial turmoil sparked by mounting bad loans to U.S. homeowners.
To help remedy the risk of a financial crisis, it is calling for more scrutiny of how banks repackage and sell loans - particularly those made to people with no money, job or assets - as investments that were rated as sound by credit rating agencies Standard & Poor's, Moody's Investors Service and Fitch Ratings.
EU finance ministers will set out their line on these measures before a meeting of G-7 and International Monetary Fund finance ministers and central bank chiefs in Washington later this month.
Unlike the dollar or the yen - or even the British pound - the euro does not have its own representative at global economy talks, so euro nations and the EU executive try to thrash out their views ahead of time. Euro members France, Germany and Italy take part in the selective G-7 talks with the United States, Japan, Canada and non-euro Britain.
BTW, I suggest perusing Laurence Broz and Jeffrey Frieden's short, easy-to-read article on "The Political Economy of Exchange Rates" if you want the skinny on this fascinating topic. It appears in The Oxford Handbook of Political Economy. There is also a copy available on Frieden's Harvard webpage. Naturally, it's all about the Benjamins.