October 09, 2007	Tuesday	Ramazan 26, 1428

PARIS, Oct 8: Euro zone finance ministers, irked by their currency’s rising exchange rate, were set to negotiate a response on Monday to a problem that makes life difficult for exporters who compete with US and Asian companies.

The talks will test how broadly they hold the view that the exchange rate is getting out of hand and how determined they are to press the case in the G7 club of industrial powers, where the United States and Japan are far from rushing to the rescue.

“Monday evening is the big moment,” one French official said ahead of the meeting in Luxembourg, and involves European Central Bank boss Jean-Claude Trichet.

“If we can get it right -- with the Europeans united on the diagnosis, the communicating and the need for action -- Trichet will have a much stronger hand to go to Washington with.” The three biggest euro zone economies, Germany, France and

Italy, are part of the G7, whose finance ministers and central bankers meet later this month in Washington.

France and Italy have complained loudly recently about the euro’s strength, but Germany, the world’s biggest exporter, has kept a lower profile, making its stand key at Monday’s talks.

German Economy Minister Michael Glos said on Monday the dollar trend was cause for concern, although it had not been a cause for sleepless nights. Finance Minister Peer Steinbrueck, who will be Berlin’s representative at the Luxembourg gathering, has been less vocal.

The euro, which recently hit record highs versus the dollar and yen, has risen more than 20 per cent versus the US currency since the shared European currency was launched in January 1999 and has gained 25 per cent against the yen.

While a rising euro can help to limit the inflationary cost of buying oil, which is priced in dollars, it makes it harder for exporters to compete in world markets where China’s state-controlled currency also sets a benchmark.

Though China has allowed its currency to rise slightly versus the dollar over the past two years, it has let it weaken by just as much against the euro, compounding a belief that the euro zone is carrying the can for others.

Europe is not alone in complaining. Australian Treasurer Peter Costello said on Monday his country’s currency, at a 23-year high, was causing exporters “a lot of problems”.

International Monetary Fund boss Rodrigo Rato said in newspaper interviews published on Monday the US dollar was undervalued but that the problem was wider.

He urged greater flexibility in Beijing’s currency policy, noting that other Asian countries tended to keep their exchange rates low to compete with China.

The Luxembourg talks will be chaired by Jean-Claude Juncker, head of the Eurogroup, a forum where the finance ministers and ECB chief Trichet liaise regularly on economic matters.

They are the last chance for ministers to deliberate together before a G7 meeting also involving the United States, Japan, Britain and Canada.

European officials have admitted in private that Washington is no more willing now than previously to lend Europe a hand.

It may even be happy to see the dollar weaken for the sake of its exports when the rest of the US economy is struggling with a housing downturn and mortgage crisis which has triggered a global credit squeeze.

Without G7 consensus or at least US support, there is no risk of central banks intervening in the exchange rate market to try to impose their will.

Without that, the driving force behind exchange rates is the perceived direction of interest rates, which militate for continued euro strength as the ECB still looks more reluctant to reduce interest rates than the US Federal Reserve.

Trichet, speaking in Brussels on Monday, gave nothing away and referred to a news conference last week where he reiterated that excessive currency volatility was very counterproductive.—Reuters