Finance ministers from the 13 EU countries that use the euro were meeting in Brussels on Monday to discuss the weakness of the Chinese currency and concerns that the latest surge in oil prices may fuel inflation and dent economic growth.
While the strength of the European common currency has helped to dampen high oil prices so far, a further rise to $100 a barrel as winter looms could spark an inflationary spiral in the eurozone. “It would be good for the economic development of the euro area if oil prices could be stabilized,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs Monday’s Eurogroup meeting, said ahead of the talks. Annual inflation in the currency bloc shot up from 2.1% in September to 2.6% in October on rising oil prices. The higher-than-expected figure was well above the 2% target set by the European Central Bank, adding pressure on ECB chief Jean-Claude Trichet to increase interest rates in the coming weeks. The unrelentless rise of the euro is also worrying a number of eurozone countries, particularly those that have been suffering most from the influx of cheaper imports from China.
Top EU officials were expected to voice such concerns at an EU-China summit scheduled for November 28 in Beijing. “We will try to make clear to our Chinese friends and counterparts that China has a growing responsibility as far as international monetary policy is concerned,” Juncker said of that meeting. Trichet last week described sharp foreign-exchange rate fluctuations as “brutal.” The ECB chief’s assessment was shared on Monday by Juncker. “Trichet has chosen the right words,” the Eurogroup chairman told reporters when asked about Trichet’s comment. The euro rose to around $1.475 at the end of last week, before easing slightly on Monday to around 1.465.
The renminbi is unofficially pegged to the dollar, and many in Europe argue that the Chinese currency is severely undervalued. However, such a view is not shared among all eurozone members. In Germany, for instance, exports have continued to rise despite the strong euro. Moreover, many big German companies now manufacture their products in China, meaning a stronger renminbi would damage them. “The euro rate is what it is and there is for us no reason for unease,” German Finance Ministry spokesman Torsten Albig told journalists in Berlin on Monday.
Eurozone growth forecasts for 2008 were last week trimmed by the EU from 2.5 to 2.2%, in part due to the fallout of the summer banking crisis. (m&c.com)