Business News

EU's Rehn calls for G20 action on currencies to help eurozone

Sep 22, 2011, 16:33 GMT

Washington - The upcoming summit of the Group of 20 (G20) top world economies must act to redress current exchange rate imbalances, the European Union's top economic official said Thursday, in a message bound to resonate in China.

The commissioner said global action exchange rates is one of the solutions to the eurozone debt crisis, which - as the International Monetary Fund warned this week - risks having worldwide repercussions.

'The G20 must step up efforts to rebalance global demand, including through market-determined exchange rates,' EU economy commissioner Olli Rehn said in a speech delivered at the Petersen Institute for International Economics in Washington.

The Chinese government has often been accused of keeping its currency, the renminbi, massively undervalued to give a competitive advantage to its exports - to the detriment of other world economies.

Alluding to longstanding demands from the United States for China to let its currency appreciate, Rehn said EU-US cooperation on the issue would play 'a decisive role.'

The G20 summit scheduled in Cannes, France, on November 3-4 also needs to 'agree on an ambitious Action Plan to keep the global recovery on track,' Rehn said.

To solve the eurozone crisis, Rehn also called for cash-strapped EU countries to stick to deficit reduction plans, quick adoption of the anti-crisis measures approved in July by EU leaders and the tightening of common economic rules among euro partners.

'US reactions to Europe's sovereign debt crisis have typically expressed incomprehension,' he acknowledged. 'Still, I would argue that what we have achieved in managing the current crisis is significant, though by no means enough,' he added.

While Rehn was speaking in Washington, the European Commission revealed that eurozone consumer confidence had fallen again in September, after registering in the previous month the biggest fall since the financial crisis started in late 2008.

The index dropped to -18.9, down from -16.5 in August. In the 27-member EU, it fell from -16.5 to -19.

In a comment, Barclays Capital noted that growing consumer pessimism - mainly linked to concerns about unemployment - would likely depress domestic demand, making it even more difficult for the eurozone to grow out of its troubles.

Nevertheless, Rehn insisted that austerity was still the best recipe for higly-indebted euro area countries such as Greece and Italy.

'I know that there are some eminent economists who consider this orientation misguided and demand aggressive stimulus instead. My answer to this critique is that in some countries there is simply no room for manoeuvre,' he said.

Read more about G20