The euro is overvalued and the European Central Bank needs a political counterweight to compensate for the fact that is it “ultra-powerful”, the head of International Monetary Fund was quoted as saying on Monday.
International Monetary Fund director general Dominique Strauss-Kahn praised the European Central Bank for containing inflation, but told Le Monde newspaper that euro zones countries needed to appoint a political supremo to make sure economic growth was promoted. “The problem with the euro is that the European Central Bank, which does a good job controlling inflation, is ultra-powerful,” Strauss-Kahn was quoted as saying. “There is no political counterweight in the shape of a real European finance minister charged with growth,” he added. When the euro zone was created, European Union governments set up the Eurogroup, an informal discussion forum for euro zone finance ministers in which the ECB is invited to participate, designed as a political counterweight to the bank.
The Eurogroup, whose role had been boosted in the Lisbon Treaty, is chaired by Luxembourg Prime Minister Jean-Claude Juncker and meets once a month to coordinate policies and work out common positions, for example on exchange rates. Strauss-Kahn is a former French economy minister and his comments on the ECB reflect widespread concern in Paris that euro zone politicians do not have enough say in monetary policy. France’s euro zone partners, including Juncker, have regularly criticized attempts by Paris to influence ECB policymaking, which France calls closer dialogue with the ECB.
Strauss-Kahn said there was a general problem with world exchange rates and added that no one currency could resolve the issue. “We are seeing great distortions between currencies. The yuan and the yen are undervalued, the euro is overvalued and the dollar is between the two,” he said. “We are alerting governments so that they correct these imbalances and we have seen with pleasure that the Chinese authorities are progressively accepting an exchange rate that is more realistic, in their own interests,” he added. “But a return to equilibrium does not depend on one single currency,” he said. Strauss-Kahn said rising energy prices had pushed up inflation around the world, but he said the economic slowdown currently underway would lead to a reduction in oil prices. “The IMF does not expect an explosion in the price of a barrel (of oil).” (Reuters)