Economy Watch
Published November 11, 2004
Currency impact
Policymakers have been expressing growing concern about the US dollar's fall and the export-damaging impact on Europe of the pace and extent of the euro strengthening. On Monday, European Central Bank president Jean-Claude Trichet called the euro's rapid climb brutal. Following is a snapshot of policymakers' comments in recent days on the recent currency moves and their economic impact:
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ECB council member Jaime Caruana, Nov 10
'Yes, I support (ECB President Jean-Claude) Trichet,' said Mr Caruana, asked about the ECB president's stance on euro/dollar fluctuations. Mr Caruana said he did not see any clear signs yet of second round effects from high oil prices, but the ECB should have to be vigilant for such signs.
French Finance Minister Nicolas Sarkozy, Nov 9
'It is not a question of anxiety (about the dollar's fall against the euro), it is like I said in Italy yesterday, it's a problem with American deficits.'
Italy's Dy Economy Minister Mario Baldassarri, Nov 9
'If the euro is at US$1.30, obviously rates are too high.' Asked if interest rates should be cut, Mr Baldassarri replied: 'Certainly'.
ECB governing council member Klaus Liebscher, Nov 9
'I would only like to say it is quite a problem, of course, if you have some international movements in foreign exchange relations and you have only one part of the world (Europe) who is really paying the bill for it. 'It doesn't help very much when US policymakers, who have agreed to the Group of Seven statement that excess currency volatility is undesirable, express conflicting views on the course of the US dollar. 'It is interesting that you have different statements on that. One statement (from US Treasury Secretary John Snow) is that 'We are very much interested in a strong dollar, stable dollar,' and the others (Fed officials) are saying, 'Let's see how it works.' So you also have different opinions.'
German Economy Minister Wolfgang Clement, Nov 9
'I assume the ECB will act (on the euro's exchange rate) if it deems it necessary.' Mr Clement said he expected the bank to follow exchange rate developments 'very attentively' and also that he thought oil prices would decline more sharply in coming weeks.
British Finance Minister Gordon Brown, Nov 9
'All of you (business leaders) are having to cope with the doubling of oil prices, rising world commodity prices, uncertainty in the Middle East, large current account imbalances between Europe, Asia and America and the changing values of the dollar, euro and pound. And thus uncertainties about the strength and durability of the world recovery.'
European Commission, Nov 9
'I think the position of (ECB president Jean-Claude) Trichet is of course shared by the Commission and the member states that excess volatility and disorderly movements in exchange rates are undesirable for economic growth,' European Commission spokesman Gerassimos Thomas said. He said finance ministers from the euro zone meeting next Monday would discuss recent developments in exchange rates.
ECB governing council member Guy Quaden, Nov 9
'It would not be desirable that the appreciation of the euro should continue, still less that it should accelerate. The governors of the European Central Bank are still, as ever, against exaggerated volatility in exchange rates. Furthermore, the United States must reduce its budget and current account deficit as quickly as possible, European countries must raise their growth potential and Asian countries (must) ease their exchange rate policy.'
Japanese Finance Minister Sadakazu Tanigaki, Nov 9
'Our basic stance is to act in a timely way and decisively if movements deviate from fundamentals. Our stance is nothing more, nothing less than that. If there are (currency) movements (that do not reflect fundamentals), that would affect their (Japanese companies) businesses. Thus, we need to carefully monitor the movements.'
Rhee Gwang-Ju, head of the Bank of Korea Intl Dept, Nov 9
Mr Rhee told Reuters the authorities were closely watching the exchange rate movements and believed the dollar's weakness would not last long. 'We have not given up (efforts to stabilise) the market but are thinking of how to counter and when ... We have been actively talking with Japan.'
ECB president Jean-Claude Trichet, Nov 8
'The recent moves, which tend to be brutal on the exchange markets between the euro and the US dollar, are not welcome from the standpoint of the ECB.' This was Mr Trichet's first recent statement discouraging the sharp rise in the single currency. He used the same word 'brutal' in January to temper the euro's rise when it also came close to breaking the US$1.30 barrier.
French Finance Minister Nicolas Sarkozy, Nov 8
'The Europeans and Americans jointly signed the Boca Raton G7 statement (in February) and we believe that the statement remains valid and I think the United States must remember it. 'The markets are worried by the strong US current account deficit. This balance of payments situation can only be corrected by the US reducing its budget deficit. This is a unanimous message from the Europeans and the International Monetary Fund that we send to the United States.'
German Economy Minister Wolfgang Clement, Nov 8
'We have a very strong economic development. Germany's export industry is currently on top form so I believe we can cope with (the euro's rise).'
Bank of Canada governor David Dodge, Nov 7
'We worry about everything so I would be lying if I said we were not worried,' Mr Dodge said when asked about the sharp drop in the US dollar and strength of the Canadian currency. Imbalances (like the US current account) of that magnitude cannot last forever. They can continue for a long time, but they cannot last forever.'
Bank of Japan governor Toshihiko Fukui, Nov 7
'We are keeping wary eyes on movements in exchange rates... all exchange rates.' Asked if the US administration wanted to guide the dollar lower, Mr Fukui said: 'I don't think so necessarily.'
German Chancellor Gerhard Schroeder, Nov 5
Mr Schroeder said the current exchange rate of the euro to the dollar was 'worrying' but his country's export industry could still manage because it was in good shape. 'We can manage that (the euro dollar exchange rate) because we are good,' he said, adding that the exchange rate did not lead to serious concerns about the country's export economy. He also said the current level of oil prices and the euro's exchange rate did not warrant immediate political measures. 'I think that at the moment anyway that's not dramatic and therefore no political measures need to be discussed. - Reuters
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