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Dow Jones Newswires interviews Michael Kosares of Centennial Precious Metals
European Finance Ministers Blame U.S.
for Troublesome Foreign Exchange Swings
By Swaha Pattanaik and Paul Carrel
Reuters
Monday, November 15, 2004
http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=6820501
BRUSSELS -- Rattled by sharp currency swings that
have driven their currency to record highs against the
dollar, euro zone nations on Monday pointed a finger
of blame at the United States.
Their joint call for U.S. action is bound to raise the
temperature when finance ministers from the Group
of Seven industrialised nations meet in Berlin later
this week as part of a broader gathering of 20 rich
and emerging-market economies.
The 12-nation euro zone's finance ministers, the
European Commission, and the European Central
Bank unanimously agreed at a meeting in Brussels
that recent currency moves were unwelcome and
could further undermine their stuttering economic
recovery.
"We expressed our worry regarding the rapid and
destabilising development of currencies. This was
a position that was unanimous," Nicolas Sarkozy
said after his swanswong appearance as French
finance minister at the euro zone meeting.
"We are concerned about these developments, which
are destabilising, and which are linked to the
accumulation of deficits by our American friends," he
added.
Concern has grown as the dollar fell past past $1.30
per euro last week, but the euro zone ministers'
chairman, Gerrit Zalm, made it clear there had been
no pressure on the ECB to intervene in currency
markets to halt the euro's rise.
"We didn't ask the ECB anything. ... As a central bank
it's never wise to promise action nor inactivity."
Ministers' primary concern was for the damaging impact
that the strong euro could have on euro zone exports
and growth.
But they pointed out that theirs was not the only region
to be afflicted by such headaches.
"The American currency is falling strongly in relation to
all other currencies in the world," Sarkozy said.
U.S. Treasury Secretary John Snow earlier on Monday
repeated a long-standing mantra that the United States
backed a strong dollar as this was in its interests.
But Europeans appear to be tiring of rhetoric alone,
particularly as it is failing to convince financial markets.
"I fully welcome the words of Mr. Snow asking for a
strong dollar, but we will need to see decisions adopted
in that direction," European Monetary Affairs
Commissioner Joaquin Almunia said even before the
meeting kicked off.
Sarkozy was even more pointed: "If the Americans were
to change their policy, it's up to them to say so."
Snow has stressed that currency rates are best set by
the markets -- a view echoed by some euro zone finance
ministers.
"Markets are deciding on exchange rates and we should
respect this," said Austrian Finance Minister Karl-Heinz
Grasser.
Still, the euro zone insisted the Group of Seven's
statement from Boca Raton, Florida, in February
remained the frame of reference for currency policy and
their chairman, Gerrit Zalm, said their comments were
consistent with that declaration.
G7 finance ministers had said at Boca Raton that
"excess volatility and disorderly movement in exchange
rates are undesirable for economic growth."
The one silver lining in the cloud was that the
strengthening euro has offset some of the impact of the
recent rise in oil prices, which are denominated in dollars.
Ministers also leapt at the chance of welcoming oil prices'
recent retreat in from record peaks and renewed their
pledge to avoid unilateral responses by national
governments.
Despite agreement by ministers in June that no state
should take unilateral action, Sarkozy had aired plans to
return to French consumers the extra tax revenues
flowing into government coffers from high oil prices.
But a commission paper presented to finance ministers
raised doubts about whether governments make any
money on higher oil prices, possibly undermining
France's drive to persuade European Union countries
to follow its lead.
The EU executive's paper said any increase in tax
revenues from rises in energy costs will be more than
offset by declines in other tax revenues as higher
energy costs lead to a slowdown in economic growth.
* * *
EU Finance Chiefs Oppose Higher Euro
But Decline to Take Any Action
By James G. Neuger
Bloomberg News Service
Monday, November 15, 2004
http://www.bloomberg.com/apps/news?
pid=10000087&sid=afTGjPJ.Ejbo&refer=top_world_news
European finance ministers said the euro's record-setting
run threatens to worsen the economic slowdown, while
declining to call on the European Central Bank to sell the
currency to push the euro down.
Growth in the 12-nation $9 trillion economy slowed to 0.3
percent in the third quarter, the weakest pace in over a
year, as the euro's rise made exports more expensive
and record oil prices crimped global demand.
"The recent sharp moves of the exchange rates are
unwelcome," Dutch Finance Minister Gerrit Zalm said late
yesterday after a chairing meeting of euro finance ministers
in Brussels. "We didn't ask the ECB anything."
With the euro above $1.29, the appeal marks a turnaround
from the last meeting on Oct. 21, when the euro was at
$1.26 and the ministers said a stronger currency was
unlikely to derail the recovery.
"Beyond $1.30, we're getting into some limits," Belgian
Finance Minister Didier Reynders told reporters. "It's a
worry."
Since the Oct. 21 meeting, the euro has set a record,
of $1.3005 on Nov. 11. In addition, the 20 percent decline
in crude oil prices has lessened the need for a rising euro
as a bulwark against oil-driven inflation.
The euro bought $1.2948 at midnight Brussels time. Crude
oil fell as low as $46.58 a barrel yesterday, the lowest
since Sept. 22.
While endorsing a "strong dollar" in Dublin yesterday, U.S.
Treasury Secretary John Snow said "our basic policy is to
let open, competitive markets set the values."
Snow made "a very positive comment," Spanish Economy
Minister Pedro Solbes said. "Let's hope it's true."
Sixty-three percent of the 56 strategists, investors, and
traders polled by Bloomberg News on Nov. 12 from Tokyo
to New York advised selling the dollar against the euro.
Sixty-six percent recommended selling the dollar versus
the yen this week and 13 percent said to buy it.
European economic growth will trail behind the U.S.
through 2006, marking 13 years in a 14-year stretch in
which Europe performs more poorly than the United
States, the European Commission forecasts.
Europe will be the world's slowest growing region next
year, the commission said last month when it cut its
2005 growth forecast to 2 percent from 2.3 percent and
said record oil prices tilt the economic risks "to the
downside."
European policymakers are relying on the same tactics
to tame the euro as at the start of the year, when
European Central Bank President Jean-Claude Trichet
denounced "brutal moves" in the foreign-exchange
markets yet stopped short of selling euros to depress
the currency.
Trichet revived that language last week, prompting a
verbal offensive by central bankers such as Jose Manuel
Gonzalez-Paramo and political leaders such as German
Chancellor Gerhard Schroeder.
"Excessive volatility in the euro's exchange rate, in the
sense that it doesn't benefit the economy, isn't desirable,"
Gonzalez-Paramo told reporters yesterday in Madrid.
The central bank on Nov. 4 kept its key interest rate at
a six-decade low of 2 percent to support recovery from
the weakest economic growth in a decade.
"The European Central Bank is watching very closely
and that they're all against sharp movements of the
euro as it was seen in the last weeks," Austrian Finance
Minister Karl-Heinz Grasser said at the Brussels
meeting. "In the long run, the euro will be in line with
economic fundamentals."
The euro extended its two-month rally after George W.
Bush won a second term as U.S. president on Nov. 2,
stoking concern the U.S. government will be slow to
tackle its trade and budget deficits.
The shortfall in the current account, the widest measure
of trade, climbed to a record $166.2 billion in the second
quarter. The gap is equivalent to 5.7 percent of gross
domestic product, up from 5.1 percent in the first quarter,
meaning the U.S. economy needs to attract about $1.8
billion a day to maintain the value of the dollar, based on
Bloomberg calculations.
"The imbalances of the U.S. economy, the double deficit,
need to be adjusted," Monetary Commissioner Joaquin
Almunia said. "If they're not, we will see a continuation of
what the markets have done recently."
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