EU states want fx to reflect econ reality - Slovenia

“Exchange rates should reflect the reality of the economy,” Slovenian Finance Minister Andrej Bajuk, whose country holds the EU’s six-month rotating presidency, told a news conference. “We will ... make an effort to make exchange rates reflect the main features of the economy,” he said, without elaborating on how that should be achieved. The strength of the euro against the US dollar and other currencies has prompted complaints from industries and many politicians in Europe. The euro extended gains against the dollar to hit a record high at $1.5489 on Tuesday, aided by an unexpectedly strong reading of Germany’s ZEW economic sentiment index for March and hawkish ECB policymaker comments.

The euro, which is the currency in 15 of the EU’s 27 member states, has risen 5.2% against the dollar since the start of the year as global financial woes resulting from the US subprime mortgage sector crisis have increased. ECB President Jean-Claude Trichet said on Monday the bank was concerned about excessive movements in currency rates.

EU Monetary Affairs Commissioner Joaquin Almunia warned the global economy might face disarray in foreign exchange markets, capital flight and trade wars unless world powers take action now. But Bajuk also said EU leaders would avoid referring to a crisis when they debate global financial turmoil at a summit in Brussels on Thursday and Friday, echoing a recommendation by all of the bloc’s finance ministers last week. “We finance ministers do not want to talk about crisis, although negative risks are there. We call it a financial shake-up, but its real extent is not clear yet,” he said. “The foundations of our economy are solid...” He said most European banks were expected to cope with the financial turmoil as they were less exposed to losses from the subprime crisis estimated at €400-500 billion ($619-774 billion). “Though the major part of losses are expected to be borne by American banks, some of the burden will be shared also by European financial institutions. The majority of EU banks are capable now to deal with this,” he said. (Reuters)