The Eurozone argument is that, with everyone else doing dirty tricks with their currencies--the US helicopter dropping greenbacks and developing countries attempting to counteract American quantitative easing via intervention in currency markets--the Euro is one of the few escape valves for currency pressures, driving the nominal value of the single currency upwards and supposedly threatening recovery:
Europe’s fledgling economic recovery could suffer if the euro is undercut by other currencies, the European Union’s economics chief warned as China rebuffed fresh pleas to allow the renminbi to strengthen. The warning from Olli Rehn, Europe’s commissioner for economic and monetary affairs, reflected a growing concern that moves by other nations to restrain their currencies in order to boost exports was taking its toll on Europe’s competitiveness...It's certainly plausible, mind you. However, China (surprise!) doesn't buy into this line of argument:
“If the euro continues to bear a disproportionate burden in the adjustment of global exchange rates, the recovery of the euro area might be weakened,” Mr Rehn said in Brussels after meetings Wen Jiabao, China’s prime minister, during an EU-Asia summit.
Euro area policymakers pressed China on Tuesday for a faster appreciation of its currency to help rebalance the world economy but said Chinese Prime Minister Wen Jiabao had differed with them. The chairman of euro zone finance ministers, [Luxembourg's] Jean-Claude Juncker, told a news conference after talks with Wen on the sidelines of an EU-Asia summit in Brussels: "China's real effective exchange rate remains undervalued."It will be interesting to see if the US rallies countries like those in the Eurozone to its cause prior to the G20. While Europeans may lend a sympathetic ear (nevermind quantitative easing), other developing countries that have also intervened in currency markets may not be so keen on siding with the US lest they too become branded as manipulators in the future. That's the slippery slope you must confront with dealing with these Yanks. Same as it ever was.
He said the 16-nation European currency area had urged an "orderly, significant and broad-based appreciation" of the yuan. Asked how Wen had responded, Juncker said the message came as no surprise to the Chinese delegation, but added in French: "The Chinese authorities do not share our view."
UPDATE: Wen Jiabao has now warned that yuan revaluation would be a "disaster for the world":
Forcing Beijing to revalue its currency would lead to a “disaster for the world”, Wen Jiabao, China’s premier, has warned amid increasing tensions over efforts by governments and central banks to hold down their exchange rates. Speaking in Brussels, Mr Wen hit back at international criticism of China’s currency policy, saying that acceding to demands for a faster rise in the renminbi could cause social unrest in ChinaMethinks this world is pretty disastrous as it already is. Everyone's cooperation is required--especially from the Chinese.
“Do not work to pressurise us on the renminbi rate,” Mr Wen said, departing from prepared remarks. He said Chinese export companies had very small profit margins, which could be wiped out by actions such as the currency import tariffs the US Congress is threatening to impose. “Many of our exporting companies would have to close down, migrant workers would have to return to their villages,” Mr Wen said. “If China saw social and economic turbulence, then it would be a disaster for the world.”