European Finance Chiefs Urge Strong Dollar After Euro’s Gains

Oct. 20 (Bloomberg) -- European finance chiefs expressed “worries” about foreign-exchange movements and backed a U.S. commitment to prevent the dollar from sliding too much after the euro rose to a 14-month high against the American currency.

“We discussed exchange rates extensively,” Luxembourg Treasury Minister Jean-Claude Juncker told a press conference late yesterday after leading a meeting of euro-area finance ministers in Luxembourg. “It’s a problem which worries us.”

The euro has gained almost 20 percent against the dollar since February, making the region’s exports more expensive to overseas buyers and threatening the recovery from the worst recession since World War II. U.S. Treasury Secretary Timothy Geithner said on Oct. 3 that it is “very important” for the U.S. to have a strong dollar.

“We all note with considerable attention the statements made by American authorities as regards their support in favor of a strong dollar,” European Central Bank President Jean- Claude Trichet told reporters in Luxembourg after attending the meeting. He also echoed the Group of Seven statement that “excessive volatility and disorganized developments in the exchange market was bad for economic development.”

The dollar traded at $1.4973 per euro as of 9:35 a.m. in Tokyo, compared with $1.4965 in New York yesterday, after earlier declining to $1.4981, the weakest since August 2008.

“We want a strong dollar; we need a strong dollar,” French Finance Minister Christine Lagarde said after the meeting. “We must remain disciplined” on the message, she said.

‘Solid and Stable’

“We reaffirm a shared interest with our partners of the major floating currencies that we have a solid and stable currency system,” Trichet said. “The eurogroup and the ECB will echo this position, which has been recently repeated by the American authorities.”

Trichet and Juncker will travel to China with European Union Monetary Affairs Commissioner Joaquin Almunia before the end of the year to discuss currencies, Juncker said. The trio went to Beijing two years ago to push Chinese leaders for a faster “pace of appreciation” of the yuan, a plea that was rebuffed at the time by Premier Wen Jiabao.

Juncker yesterday said it was too early to talk about what they would say to their Chinese counterparts this time. “We’re not pre-announcing a message,” said Juncker, who also serves as Luxembourg’s prime minister.

Juncker reiterated that the European economy is still too weak to remove record-low interest rates and government spending programs. Governments are spending billions of euros to boost the economy, while the ECB is lending banks as much money as they want for up to a year and purchasing covered bonds in an effort to get credit flowing again.

‘Positive and Negative’

“There are clear signs of recovery, but there’s still a balance between the positive and negative signs,” Juncker said. If new European Commission forecasts due next month show a “genuine recovery,” then stimulus measures should “be gradually withdrawn” starting in 2011, he said.

The euro-area economy barely contracted in the second quarter as Germany and France returned to growth. The region’s gross domestic product will expand 0.3 percent in 2010, the International Monetary Fund forecast on Oct. 1, as it trimmed its estimate for this year’s contraction to 4.2 percent from the 4.8 percent it projected in July.

The finance ministers’ meeting was delayed and then displaced by farmers demonstrating against agricultural policies at the usual meeting venue in Luxembourg. The meeting was moved to a chateau about 10 kilometers (6 miles) away after at least 1,500 farmers and about 400 tractors marched through Luxembourg’s streets to the conference center where the officials normally meet.

The protests were aimed at a meeting of agriculture ministers that took place at the same conference center before the finance chiefs were scheduled to meet. The agriculture officials, whose meeting wasn’t disrupted, agreed to extend the period for intervention buying of butter and skimmed-milk powder until the end of February to bolster milk prices.

To contact the reporters on this story: Brian Swint in London at bswint@bloomberg.net; Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net.

Last Updated: October 20, 2009 00:15 EDT