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24th Jan 2021

Eurozone ministers call for stronger Chinese currency

  • Finance ministers argued that the yuan does not reflect the strength of the Chinese economy (Photo: EUobserver)

Eurozone ministers are pressing China for a more freely floating yuan, after being unable to find a common position on the euro's unprecedented strength against the US dollar.

The finance ministers of the 13-country eurozone, meeting in Luxemburg on Monday (8 October), argued that the Chinese policy of holding the yuan broadly stable against a basket of currencies does not reflect the fundamental strength of the Chinese economy.

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Consequently, they called on China to let its currency float more freely.

"It is desirable that effective exchange rates move so that necessary adjustments will occur," said eurogroup chairman and Luxembourg prime minister Jean-Claude Juncker in a statement, Forbes reports.

The call comes after Europe's trade deficit with China increased from €41.3 billion to €50.4 billion in the first half of this year, compared with the same period last year – a jump of 22%.

Ministers agreed to send a delegation consisting of Mr Juncker, European Central Bank president Jean-Claude Trichet and EU monetary affairs commissioner Joaquin Almunia to China by the end of this year.

Meanwhile, the dollar's unprecedented weakness vis-a-vis the euro has hit EU exporters and led to a steep decline in the euro zone's trade surplus with the US.

Nevertheless, ministers failed to find a common position on how to respond to the euro's rise against the dollar.

While French president Sarkozy considers a strong euro a economic threat, German finance minister Steinbrueck went as far as to say: "I prefer a strong euro," according to Bloomberg.

The joint statement was limited to repeating the G7 position that "excessive volatility" of exchange rates is "undesirable for economic growth", and noted with "great attention" that the US have reaffirmed that a strong dollar is in the interest of their economy.

On 19 October, European officials will meet US counterparts at a G7 meeting in which the euro-dollar relationship is likely to be discussed.

Criticism on France's budget

Meanwhile, the sensitive issue of France's public finances was also on ministers' agenda.

Mr Juncker indicated that France's budget proposals are not in accordance with what the eurozone ministers expected, and questioned France's projected growth figures, saying that they would return to the issue in 2008.

"We felt that the draft budget was not entirely in line with our expectations," he said after the meeting, Forbes reports.

"We feel that if any country would not meet the objectives in 2010 it should adjust its expenditure accordingly," he added.

Nevertheless, he said that the proposals made by France were "ambitious" and in line with the structural reforms proposed in the Lisbon strategy, the EU's economic reform programme.

EU-China summit to be overshadowed by trade rifts

Chinese and EU leaders will meet in Beijing on Wednesday to discuss a wide range of trade issues that have complicated the relations between the two economic powerhouses in recent years. The points of contention include the strength of the Chinese currency, product safety, dumping and counterfeiting.

Mandelson strongly critical of Chinese trade policy

EU trade commissioner Peter Mandelson has lambasted China's trade policy towards the European Union, demanding that the country opens itself up for European goods and services or risk facing a protectionist backlash.

Chinese 'currency swap' would further strengthen euro

If China was to gradually replace its dollar reserves with other currencies such as the euro, a further rise of the common European currency against the dollar will take place, experts warn.

Vietnam jails journalist critical of EU trade deal

A journalist who had demanded the EU postpone its trade deal with Vietnam until human rights improved has been sentenced to 15 years in jail. The EU Commission says it first needs to conduct a detailed analysis before responding.

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A senior EU diplomat said Poland and Hungary should lift their veto or give a signal they are willing to do by Tuesday - otherwise there will be alternative plans for a recovery fund with the other 25 member states.

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