The euro's strength against other currencies is "no reason to panic," Luxembourg Prime Minister Jean-Claude Juncker said Friday before he led talks between the 13 nations that use the common currency.
EU finance ministers are gathering as the euro hovers near record highs against the US dollar and Japanese yen and as EU economies seek new ways to combat tax fraud. Juncker said he wasn't excessively worried about foreign exchange rates at this stage. "The euro's foreign exchange rate hasn't moved upward brutally, but slowly," he said. "Markets must know that they are well advised if they engage in one-way bets." Austrian Finance Minister Christoph Matznetter said it wasn't up to politicians to set rates by remote control, calling the euro a very stable currency. Talks Friday between euro economies are slated to discuss how they should be doing ahead of their 2008 budget plans.
Despite last year's sterling work that saw the euro-zone's two largest economies, Germany and France, both finally bring their budget deficits under a 3% limit, the EU's executive arm will likely tell them to do more to pay off debt as they enjoy revenue windfalls from strong economic growth. The euro's high value could be a worry because it makes European exports more expensive to customers in the United States and competing unfavorably with Japanese rivals benefiting from the weak yen. The euro rose to a two-year high Wednesday but stopped short of hitting its record, even as the British pound reached a 26-year high after breaking the $2 mark this week.
The EU's 27 finance ministers settle down to informal talks later Friday, covering a lot of ground by swapping views on what they can do to cut unemployment currently at its lowest level in 15 years even though it is nearly twice the US rate. They will look at increasing training programs to encourage people to find new jobs as manufacturers move to lower-wage locations elsewhere. They will also talk about their own experiences in reforming tax systems as some try to boost jobs by cutting labor taxes. On Saturday, the meeting touches on taxation, one of the most difficult areas for finance ministers to reach unanimous agreement as some nations try to tackle a growing sales tax fraud scheme that leaches millions from their treasuries.
Britain is seeking support to change value-added tax rules to clamp down on carousel fraud that sees VAT traders exploit cross-border trade by claiming refunds from the British Treasury for tax they have never paid. London wants to charge VAT to the final customer for computer chips, mobile phones and personal digital assistants: high-value, easy-to-transport goods that fraudsters move from country to country to claim refunds on VAT they never paid. This is easy to do because the current system allows refunds throughout the supply chain. But the "reverse charge" Britain was looking for may force criminals to shift operations to other countries or other products. It also puts in question the entire VAT system. Germany would like the reverse charge system to roll out across the EU and last year stalled any deal on a wide-ranging package to simplify VAT until all countries support its call for more work on the issue.
The European Commission, which would need to put forward new rules, said it is open to changes but needs "clear orientation" from EU nations before it would start work. Ministers will also discuss whether hedge funds and private equity funds pose a risk to the global financial system ahead of another set of talks on the issue between G-8 nations in June. Germany, which currently leads both the G-8 and EU meetings, is asking others to consider more active regulation, saying it was thinking of a code of conduct or a seal of approval for responsible funds. (chron.com)