EU calls for currency appreciation in Asia

EU calls for currency appreciation in Asia

Agence France-Presse, Luxembourg

EU finance ministers, eager to ease the pain of the euro's strength, stepped up pressure on Tuesday on Asian countries to let their currencies appreciate ahead of an upcoming G7 meeting.

Luxembourg Prime Minister Jean-Claude Juncker, whose country currently holds the EU's presidency, said EU finance ministers believed an "orderly" appreciation of Asian currencies was "absolutely necessary".

Juncker said he would voice European concerns about exchange rates at a meeting in Washington on Friday and Saturday of finance ministers of the Group of Seven (G7) most industrialized countries.

Speaking at a press conference after meeting on Monday with eurozone finance ministers, he said they had agreed that he would "repeat verbatim" at the Washington gathering a message he gave in February in London at the last G7 summit.

"In other words, excessive volatility and concern about exchange rates because the current position remains contrary to the objective of robust economic growth," he said.

"We also repeated that exchange rates will not cause undesirable economic imbalances. All important economies would be expected to redress global economic imbalances ... so that if appreciation has to take place, it will be orderly," he said.

Juncker added: "Appreciation of some Asian currencies is more than highly desirable."

Past calls for currency appreciation in Asia have fallen on deaf ears, leaving policymakers in the eurozone with the impression that their countries are bearing the brunt of the dollar's weakness because many Asian currencies are either directly or indirectly pegged to the U.S. currency.

That makes goods produced in the eurozone more expensive on global markets compared with products from the United States and Asian countries.

The strength of the euro and soaring oil prices, two factors largely out of the control of finance ministers, have been raising concerns in European capitals.

Juncker warned that the soaring oil prices were "beginning to weigh on the possibility of having firmer growth in Europe and the world".

He added: "We underestimated the development of oil prices, which have risen 40 percent since the beginning of the year."

Concerned about high oil prices and the strength of the euro, the European Commission last week cut its 2005 growth estimate for the eurozone to 1.6 percent from 2.0 percent previously.

EU ministers may find some relief in a report by the International Energy Agency which said on Tuesday that factors behind recent record high oil prices may be easing, reporting increases in supply and signs that growth of demand may be slowing in China.

In the face of soaring oil prices and a strong euro, European policymakers have few options to spur their economies since most countries have no room to increase spending under EU rules and the European Central Bank has said it has no plans to cut interest rates.

The European Commission, which has the job of policing EU deficits, said it was keeping a close eye on the public finances of France and Germany for signs that their deficits are improving as Paris and Berlin promised they would.

Meanwile, Italian Finance Minister ruled out painful measures to rein in his country's deficit despite signs that it is spiraling well beyond EU limits.