LUXEMBOURG (Reuters) - Irked by the euro’s relentless rise, finance ministers from Europe’s common currency area turned up the heat on China on Monday over the weakness of its state-controlled currency, seen by them as an unfair trade advantage.
They made the point after talks to forge a stand ahead of an October 19 meeting of finance ministers from the G7 industrialised powers — the United States, Japan, Canada, Britain, and euro-zoners Germany, France and Italy.
In a statement, the euro zone ministers reiterated pleas to financial markets to heed U.S. statements that a strong dollar was in U.S. interests and take account too of Japan’s improving economy.
But the novelty was the harder tone on China, where Europe has so far let Washington do most of the tough talking.
“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 would visit Beijing before the end of the year with European Economic and Monetary Affairs Commissioner Joaquin Almunia.
The euro has risen more than 20 percent against the dollar and yen since its launch in January 1999.
Though China has allowed its currency to gain marginally versus the dollar over the past two years, it has let it slide against the euro in equal proportion, compounding the feeling that the euro zone is carrying the can for currency mismatches.
“We note that the euro is playing its role for an orderly reduction of the imbalances,” the euro zone statement said.
While a rising euro can help limit the cost of oil, which is priced in dollars, and so curb inflation, it makes it harder for exporters to compete in world markets where the Chinese yuan also sets a benchmark that many others in Asia follow.
The Luxembourg talks were billed as a test of how broadly the 13 euro zone governments shared the view that the exchange rate is 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 though its economy is now the world’s fourth largest and its exchange rate is a major issue of friction since it entered the World Trade Organisation in 2001, triggering a boom in its exports.
France and Italy complained loudly in recent days and weeks about the euro’s strength, but Germany, the world’s top exporter, has sent mixed signals.
German Finance Minister Peer Steinbrueck did little to diminish the view that Berlin is not standing squarely behind Paris, telling journalists as he entered the Luxembourg meeting: “I prefer a strong euro.”
That jarred with a campaign being waged by French President Nicolas Sarkozy.
But Europe is not alone in finding fault with global exchange rates.
Rodrigo Rato, head of the International Monetary Fund, said in newspaper interviews the U.S. dollar was undervalued and he also urged greater flexibility from Beijing on its currency.
European officials have admitted in private that Washington is no more willing now than previously to lend Europe a hand if the euro zone demanded it.
It may even be happy to see the dollar weaken for the sake of its exports when the rest of the U.S. economy is struggling with a housing downturn and mortgage crisis which has triggered a global credit squeeze.
Without G7 consensus or at least U.S. support, the markets where currencies are traded see next to no risk of central banks intervening to impose their will.
with reporting by Marcin Grajewski, Paul Carrel, Huw Jones, Anna Willard, Valentina Za, Yves Clarisse and Ilona Wissenbach