Rising euro, slowing growth, worry Europeans


  • Business
  • Tuesday, 16 Nov 2004

BRUSSELS, Belgium (AP) - European Union officials Monday urged the United States to curb its deficits to help bolster the sagging US dollar amid fears a strengthening euro would stifle Europe's fledgling economic recovery. 

"Now it's up to the Americans to respond,'' French Finance Minister Nicolas Sarkozy told reporters after a meeting of finance ministers from the 12 euro-using countries. 

Dutch Finance Minister Gerrit Zalm, who chaired the session, echoed the concern, while also stressing there was no push for intervention in currency markets by the European Central Bank. 

"The recent sharp movements of exchange rates are unwelcome,'' he said at the closing news conference, but added: "We didn't ask the ECB for anything.'' 

That stance was echoed by U.S. Treasury Secretary John Snow at the start of his European tour Monday in Ireland. 

Snow said that while the United States supports a strong dollar, exchange rates should be left to currency markets, suggesting that Washington would not support any intervention by central banks. 

Other items on the two-day agenda for EU ministers included high oil prices, the revelation that Greece joined the euro zone using faulty budget data - in fact, it didn't qualify at all - as well as a counterterrorism push for common rules on cash movements into the European Union. 

Ministers welcomed the recent easing of oil off its record highs, yet reiterated worries that the sharp rise would "take its toll on economic activity'' next year. 

They agreed to allow countries to help "the poorer sections of the population'' cope with increased energy bills, as France has already proposed. 

But they said any other measures - such as breaks for energy-dependent industries - had to be coordinated with the entire EU to avoid market distortions. 

The euro hit an all-time high above US$1.30 last week _ a surge that, if it continues, threatens to stifle Europe's export-driven growth by pricing European products out of global markets. 

"It's not good for anyone to have this kind of movement,'' EU Economic and Monetary Affairs Commissioner Joaquin Almunia said going into the evening meeting. 

He welcomed Snow's reiteration of U.S. support for a strong dollar, but said he was waiting to see what action is taken in Washington to back it up. 

"If the imbalances of the U.S. economy are not adjusted in the future, the decision in the market will be as in the past weeks,'' Almunia said. 

Currency traders blame the dollar's chronic slide on expanding budget deficits under U.S. President George W. Bush as well as huge trade deficits. 

Despite Washington's official position, analysts say a weaker dollar would help correct those imbalances by boosting U.S. exports, thus spurring American economic growth. 

The euro's rise comes on top of last week's data showing that growth in the euro-zone economy slowed sharply in the third quarter - especially in heavyweights Germany and France - and is expected to remain sluggish in the next six months. 

"Policy makers cannot ignore the weakness of euro-area economies anymore,'' Morgan Stanley economists Eric Chaney and Anna Grimaldi wrote Monday, predicting that ministers would be "more vocal'' about the euro's slide. 

Ministers also examined the budget situation in 10 countries facing excessive red ink, although again no decisions were expected. 

Greece was coming in for the most scrutiny after a Eurostat mission found its deficit has breached the 3 percent of gross domestic product cap since 1997 - meaning it never should have been invited to join the euro club. 

Almunia said Greece would probably face disciplinary action for its excessive deficits, but ministers said Greece's acceptance into the euro zone, made at the time on the "best available evidence,'' was not in doubt. 

"This decision is not put into question,'' Almunia said. 

On Tuesday, finance ministers from all 25 EU countries were to discuss subjects ranging from the ongoing revision of budget deficit rules to proposals for reforming EU sales taxes. 

The most concrete decision due is a preliminary agreement to set a common level for declaring cash entering or leaving the EU, which currently varies by country. France, for example, sets the threshold at euro7,000 (US$9,100), while in Germany it's euro15,000 (US$19,500). 

A Dutch diplomat, whose country is chairing the meeting, said he expected the final level to be between euro10,000 and euro12,000 (US$13,000 and US$15,600). 

The measure, part of a package aimed at combatting terrorist financing and money laundering, would still require approval by the European Parliament. - AP 

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