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Hollande warns on euro strength, denounces markets for currencies

Section: Daily Dispatches

Hollande Warns on Euro Strength

By Hugh Carnegy and Alice Ross
Financial Times, London
Tuesday, February 5, 2013

Francois Hollande has issued a clear warning that the current strength of the euro could damage the fragile economic recovery in Europe, calling for international action to stem currency distortions.

"The euro should not fluctuate according to the mood of the markets," the French president told the European parliament in Strasbourg. "A monetary zone must have an exchange rate policy. If not, it will be subjected to an exchange rate that does not reflect the real state of the economy."

He said he was not calling for the European Central Bank to set an exchange rate target, but he demanded "an indispensable reform" of the "international monetary system."

He added: "If not, we are insisting on countries making efforts to be competitive which are destroyed by the rising value of the euro."

... Dispatch continues below ...


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The pace of the euro's rise in recent weeks has alarmed some policy makers and European companies.

Investors have returned to the eurozone in force this year on increasing optimism that the worst of the crisis is over. The ECB's decision in January not to cut interest rates gave the euro a further boost in currency markets.

As a result, the single currency has risen nearly 4 per cent against the dollar this year to trade near a 15-month high and is at its strongest rate against the Japanese yen since April 2010. LVMH, the European luxury company, warned last week that a strong euro could hurt its business and prompt it to rise its prices in 2013.

Speaking later at a press conference, Mr Hollande said France's efforts to improve its diminished competitiveness were among those threatened. "The eurozone must, through its heads of state and government, decide on a medium-term exchange rate," he said. "We need to act at an international level to protect our own interests."

French ministers have voiced mounting concern in recent days about the strength of the euro, which last week traded above E1.37 to the dollar, nervous that single currency members were vulnerable to perceived deliberate moves to manipulate their currencies by countries such as Japan.

"Europe  . . .  is leaving the euro vulnerable to irrational movements in one direction or the other," Mr Hollande said.

Setting out his European policy in his speech, Mr Hollande also aimed barbs at Germany and the UK, although he was careful not to name either.

Calling for deeper "solidarity" across the EU to help weaker countries instead of "austerity without end," he said countries with "surpluses and strong competitiveness" must "stimulate internal demand to allow others to recover [economic] activity."

Currency traders and investors have become cautious of the euro's recent strength, however. A warning at the weekend from Pierre Moscovici, the French foreign finance minister, sent the euro lower on Monday, while concerns over political stability in Spain and Italy have also led the single currency to fall from its recent highs.

Speculation has grown that the ECB could face questioning over the euro's rise when it meets on Thursday, with investors on high alert for any signs the central bank could factor the strength of the euro into its economic outlook for this year.

Mr Hollande also warned that "the national interest is in the process of taking the place of the European interest," in a clear riposte to David Cameron, the UK prime minister, who last month called for a renegotiation of EU terms, followed by a referendum on British membership.

He said the EU should not be content to be simply "a market, a collection of rules" or "a sum of nations where each looks for what is good for itself and only itself."

He said: "Europe is a commitment where each accepts the equilibrium of rules and obligations and the rules are respected, where confidence creates solidarity. It is a project where you do not dispute without end the [rules] and throw everything into question at every step."

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