Eurozone worried by weak dollar

Oct 19, 2009, 23:06 GMT

Luxembourg - Eurozone officials on Monday called again for a stronger dollar amid concerns that current exchange rates could undermine Europe's still-fragile economic recovery.

'We all note with considerable interest and attention the statements made by the American authorities as regards their policy in favour of a strong dollar,' European Central Bank President Jean- Claude Trichet said at an informal meeting in Luxembourg.

'We very much share that view,' the head of the ECB said.

Trichet's comments came as the dollar continued to edge closer to its 14-month low against the euro and to the psychologically sensitive level of 1.50 euros.

United States Treasury Secretary Timothy Geithner and rate-setting Federal Reserve chief Ben Bernanke have repeatedly said that they favour a strong dollar.

However, such comments have not stopped the dollar's devaluation against the euro, fuelling speculation that US authorities are privately supporting a weak dollar to get their own economy back on track.

US media recently quoted a major US exporter as saying that Geithner had conveyed the message that 'his first thing was getting the economy stronger, and that he'll worry about the dollar later.'

Trichet on Monday dismissed such suggestions, saying: 'We don't put into question the seriousness of the secretary of the Treasury and of the chairman of the Fed, and we trust what they say.'

The euro in fact remains strong versus the British pound and the Chinese renminbi, too.

This has already had an impact on the euro area's trade balance, with exports falling by 5.8 per cent in August from July and imports falling by a more modest 1.3 per cent over the same period.

A strong currency tends to make exports more expensive and imports cheaper.

Jean-Claude Juncker, the Luxembourg finance minister who chairs the Eurogroup's monthly meetings, said he planned to travel to China to discuss exchange-rate levels 'before the end of the year.'

Trichet and Joaquin Almunia, the European Union's economic and monetary affairs commissioner, also planned to attend the meeting in Asia.

At their evening talks in Luxembourg, eurozone officials agreed on the need to start tackling their ballooning budget deficits as soon as the economic recovery becomes solid, most likely in 2011.

Some 20 EU countries, including France and Germany, are facing the wrath of the European Commission for breaching the bloc's Stability and Growth Pact, which limits a country's budget deficit to within 3 per cent of its gross domestic product.

The venue of Monday's meeting was changed at the last minute because of a protest by European dairy farmers. The farmers were targeting a previous meeting of EU agriculture ministers.