European FMs oppose excessive currency moves

Nov 28 | Updated: Nov 29 2006, 09:18am hrs
European finance ministers said they oppose excessive foreign-exchange moves after the euro advanced to a 20-month high, while stressing the currencys strength doesnt yet threaten economic growth in the region.

Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth, Luxembourg Prime and Finance Minister Jean-Claude Juncker said at a press conference in Brussels. Austrian colleague Karl-Heinz Grasser told reporters we can live with the current exchange rate.

Juncker, who chairs the finance minister meetings, struck a tougher tone at the press briefing after earlier telling reporters the euro was still lengths away from the critical zone, a comment that contrasted with French colleague Thierry Bretons calls for collective vigilance. The euro is still 6% below its December 2004 record of $1.3666. Italys Tommaso Padoa-Schioppa said the euro has been even stronger in the past and Juncker indicated he sees no reason to act for now.

We think the current exchange rate prompts for the moment no consequences that would lead us to react with more intensity, said Juncker. His comments on disorderly moves echo language first used by policy makers at the February 2004 meeting in Boca Raton, Florida, of the Group of Seven nations.

The euros appreciation has prompted some economists and executives to say the ECB should call a halt to its cycle of interest-rate increases next year.

Barclays Capital calculates the recent move in the euro is the equivalent of a 17-basis- point increase in the ECBs key rate in terms of its impact on the economy. I hope there is no pre-programmed and foreseeable rate increase month after month or quarter after quarter if the economy were to slow, said Belgian finance minister Didier Reynders. ECB President Jean-Claude Trichet has so far said nothing on the euros rally. Trichet has indicated the ECB is ready to take its key rate to 3.5% next month, which would be the sixth increase in a year. The ECBs governing council next meets on December 7.

Bloomberg