LUXEMBOURG, Oct 9: Irked by the relentless ascent of their currency, eurozone finance ministers have decided to target China’s yuan as the chief culprit in a quest for fair play on global exchange rates and trade.
The message, however, met a predictable response in Beijing no sooner than the ink on their statement had dried on Tuesday.
China would stick to a policy of gradual change towards a more flexible exchange rate, a Foreign Ministry spokesman said.
The eurozone ministers made their point during a two-day meeting in Luxembourg where they hammered out a common stand for an October 19 meeting of the G7 industrial powers -- the United States, Japan, Canada, Britain and eurozone members Germany, France and Italy -- where China will be absent.
They reiterated pleas to financial markets to heed US statements that a strong dollar was in US economic interests and urged them again to take account of Japan’s improving economy.
The novelty was a clear shift of focus to China, where Europe has until now let Washington do most of the tough talking, with limited results.
“First point China, second point dollar, third point yen,” Jean-Claude Juncker, chairman of the meeting, said.
He and European Central Bank President Jean-Claude Trichet will visit Beijing before the year-end with European Economic and Monetary Affairs Commissioner Joaquin Almunia.
“In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur,” the eurozone statement said.
Economists were sceptical, asking why Europe would succeed in inducing rapid change where US Treasury Secretary Henry Paulson had so far secured little.
Trichet said requests for a more flexible policy from China had been made since 2004 and he was keen to avoid the impression that Europe was getting heavy-handed.
“We are sticking to our guns. We are saying the same thing to all of emerging Asia, not just to the Chinese, since the (G7) meeting in Florida at the beginning of 2004,” he told members of the European Parliament in Brussels.
In Beijing, Chinese Foreign Ministry spokesman Liu Jianchao told a regular news briefing: “On this issue, China has repeatedly enunciated its stance. China will continue making the relevant arrangements according to this flexible exchange rate policy. We are willing to engage in dialogue and consultation with concerned parties on this issue.”
The euro has risen more than 20 per cent against the dollar and yen since its launch in January 1999, and the appreciation has been around 10 per cent in just the last 12 months.
China has allowed its currency to rise marginally versus the dollar over the past two years but let it slide against the euro in equal proportion, compounding the feeling that the eurozone is carrying the can for global currency mismatches.
“We note that the euro is playing its role for an orderly reduction of the imbalances,” the eurozone statement said.
While a rising euro can help limit the cost of oil, which is priced in dollars, and thus curbs inflation, it makes it harder for exporters to compete on price in world markets, where the yuan also sets a benchmark that many others in Asia follow.
The ministers were joined by their colleagues from the rest of the European Union’s 27 countries on Tuesday and spent much of their time discussing embryonic ideas for better supervision of financial markets to avoid crises like the credit crunch spawned by defaults in US high-risk mortgage markets.
The currency talks had been billed as a test of whether the 13 eurozone governments agreed the exchange rate was getting out of hand and how determined they would be to press the case in the G7, where the United States and Japan are far from rushing to the rescue.
China is not a member of the G7 although its economy is now the world’s fourth largest and its exchange rate has caused friction since the country joined the World Trade Organisation in 2001, triggering a boom in its exports.—Reuters
