Euro zone chief says currency too strong
THE EURO is too strong, but its very strength is proof that the naysayers who predicted its demise were mistaken, Jean-Claude Jüncker, prime minister of Luxembourg and president of the euro zone told the European Institute in Washington yesterday.
The Dutch ambassador told Mr Jüncker that she and her European colleagues in Washington are frequently asked when the EU will disintegrate, when the euro will cease to exist.
With some relish, Mr Jüncker recalled “reading in Anglo-Saxon newspapers that the euro had its best days behind it”. Yesterday morning, he noted “the euro was 1.40 against the dollar, and I am not happy about it”.
Yet the strength of the euro proved that confidence in the currency “was not hampered by the recent crisis. The euro behaved like a strong currency. In fact the euro is a strong currency. It’s the world’s strongest currency,” Mr Jüncker said.
Now it was necessary “to make sure that weaker currencies are catching up against the euro”, in particular the Chinese renminbi.
“The euro is the euro and nothing happened that was announced in previous months: no failure, no major crisis between the different countries, nothing of all this happened. I am president of the euro group, and I am saying the euro is too strong.”
Asked whether he was “more on the American side than the Chinese side” in the “currency war” between Washington and Beijing, Mr Jüncker replied: “I am on the European side.” The fundamental difference between the US and European approach was that: “We are listening to the Chinese before talking to them. Others are talking but they are not listening.”
In meetings with the Chinese prime minister, finance minister and governor of the central bank, Mr Jüncker said: “We are explaining to our Chinese colleagues, without lecturing them publicly, that we think a broad-based appreciation of the renminbi would be in the best interest both of the Chinese and the global economy. The Chinese don’t share this approach because, they explain, European exports to China have increased 42 per cent this year. We think the Chinese have to redirect the components of their internal growth towards a more domestic, consumer-driven growth and less export-driven.”
Small states like Luxembourg are better listeners than big countries like France and Germany, Mr Jüncker said. He believed the crisis between Germany and Greece last spring was due to the Germans’ failure to listen. He also faulted Slovakia for its lack of solidarity with Greece.
Mr Jüncker said he knows the Greek economy well and saw the crisis coming. “I could not go public with the knowledge,” he said. “Three or four years ago, I knew that one of the main Greek characteristics is corruption . . . Now the Greek prime minister is saying, ‘I am governing a country of corruption’. The Greek crisis could have been avoided if Greece had behaved in a totally different way starting decades ago,” Mr Jüncker said. “It was clear that this problem would occur. We knew it would, because we were discussing it among the Germans, the French and myself.”
During the crisis, German parliamentarians suggested asking Greece to hand over islands to pay for their bailout, and Greeks suggested demanding reparations for the second World War from Germany. “In no other country was it discussed like in Germany,” Mr Jüncker said.“It was the eve of important regional elections. Germans wanted to make sure that money would not be given like that to Greeks, but would be subject to strict conditionality. The Germans gave the impression that they were the only ones who wanted to be strict. That was not the case.”
Mr Jüncker said the Greek and Irish situations were “totally different”. He said the Irish crisis was “due to the fact that the GDP is largely composed by the activities of the financial sector and that we had a real estate bubble in Ireland, a phenomenon we did not have in Greece,” he said. “There is no other country inside the euro area where the financial sector has taken such a jolt,” he added.
“It’s to some extent understandable those countries with a major financial sector are far more impacted than others. The Irish government took the right steps . . . adopted a courageous and tough policy to redirect the public expenditures in making major cuts in the Irish budgets,” he said.
This year’s 32 per cent Irish budget deficit was “a one-shot element because this will be corrected in the course of the next year and the average debt will come down to less than 10 per cent in 2011”.