17th Jul 2019

Strong euro 'painful' for European firms, business says

Amid mounting concern about its impact on exports, European businesses have demanded rapid action to slow down the euro's rise against the US dollar and other currencies.

"The euro exchange rate has attained a pain threshold for European companies", Ernest-Antoine Seillière from the pan-European employers' association, BusinessEurope, said in response to the euro's new heights.

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On Monday (1 October), the European currency hit a high of $1.4281, with indices for eurozone manufacturing suggesting that new export orders are growing at the slowest pace since August 2005.

According to the Financial Times, Mr Seillière sent a letter to Jean-Claude Juncker, the 13-member eurozone's chairman.

Eurozone finance ministers are expected to adopt a common stance on the issue during their regular monthly meeting next Monday (9 October) - only eleven days before the world's seven leading economies, the G7 group, meet in Washington.

The euro's hikes "tend to worry us a lot", Mr Juncker was cited as saying by the FT on Monday (1 October), adding it was no longer acceptable for Europe to bear the brunt of "the consequences of the existing global imbalances".

The blunt statement has been echoed by others, too.

"I'd really like to hear again [US Treasury secretary] Henry Paulson saying loud and clear that a strong dollar is good for the American economy", France's finance minister Christine Lagarde said in an interview with Les Echos.

Italy's prime minister Romano Prodi reportedly spoke to German chancellor Angela Merkel by telephone, saying "there is concern that US policy is very attentive exclusively towards domestic interests".

But despite strong statements, the real impact of the euro's strength on exports is "relatively small" - an analysis prepared for a eurozone finance ministers' meeting and cited by the FT says.

According to the document, the euro's appreciation from 2001 to 2006 reduced eurozone exports by only 0.8 percentage points a year, while other factors - including in particular foreign demand - play a more important role.

Washington has not indicated yet what language it will accept on exchange rates discussed at the G7 meeting on 20-22 October.

However, it is expected it will oppose anything, which would call into doubt the role of currency markets in determining exchange rates.

Instead, the US will probably ask that China be more flexible in its exchange rate regime to address the issue of its vast current account surpluses, according to the FT.

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