ECB's Padoa-Schioppa warns Asia over forex peg
WASHINGTON, Feb 26 (Reuters) - European Central Bank executive board member Tommaso Padoa-Schioppa said on Thursday the rampant euro proved the bloc was doing its bit to ease global imbalances and chided Asia for fixed currency regimes.
"Europe has fully supported the adjustment process over the last two years. It has done so in spite of the fact that Europe is not contributing -- in either way -- to the gravity of present global imbalances," he told a conference in Washington.
"As part of this adjustment process, the euro has appreciated against the dollar by 46 percent since March 2002," he added, noting that it was "striking" that the euro had risen by the same amount against Asian currencies.
Europe is worried the strong euro could derail its economic recovery and the ECB has recently warned against "brutal" moves in foreign exchange markets, hinting that it might intervene to cap the common currency's ascent.
German and French leaders on Thursday called for the ECB to cut interest rates to take the steam out of the currency.
He did not comment on the euro's value, although he referred to the bank's recent comments on excessive volatility.
Padoa-Schioppa said foreign exchange rates on their own were not enough to resolve the "pressing issue" of the imbalances, code for the huge U.S. current account deficit of around 5 percent of GDP, and said Europe's contribution should be in lifting growth.
"The exchange rate alone is not sufficient: growth differentials must also adjust and here is where lies the main challenge for Europe today: the challenge is to increase its potential and actual growth," he said.
But some Asian countries, by operating a peg against the dollar or intervening to keep their currencies cheap, were risking a protectionist backlash and not helping their future integration into the world economy.
"It will be difficult to secure progress in economic and financial integration - both within Asia and between Asia and the rest of the world - without addressing at some point the monetary dimension of such cooperation," he said.
He said that for some years, these unilateral pegs had worked to the benefit of the United States and Asia, funding the U.S. fiscal and current account deficits while boosting Asian growth and building their foreign reserves.
"However, one may wonder how long this mutually beneficial outcome will last," he said, noting U.S. calls for greater foreign exchange flexibility and the recent Group of Seven communique issued in Florida earlier this month.
"The adjustment of global imbalances is a delicate process ... we should be aware of the fragility and incompleteness of the system of open trade we have constructed over the years. I know of no country where the constituency of protectionism takes long vacations," he said.
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