Finance ministers fail to agree on euro appreciation

European finance ministers failed to find common ground last night on tackling the euro's appreciation to a record against the dollar as they prepare for next week's meeting of the Group of Seven nations.

"I prefer a strong euro," Germany's Peer Steinbrück told reporters at a meeting of euro-zone finance ministers in Luxembourg, a comment echoed by counterparts from the Netherlands and Austria. Dutch finance minister Wouter Bos said "the whole idea of the strong euro means that people have confidence" in the economy, and Austria's Wilhelm Molterer said the European Central Bank (ECB) "has our full support".

France's Christine Lagarde, whose government has said the ECB should do more to curb the currency's gain, said she did not feel isolated as she arrived for the gathering.

Officials from the 13 nations that use the euro differ on how to respond to the currency's rally, which French president Nicolas Sarkozy says threatens to hurt an economy already confronted by a rise in credit costs over the past two months. While Ms Lagarde said last week that she would push for the central bank to sell euro, ECB president Jean-Claude Trichet has so far refused to signal increased concern about the currency.

The euro has appreciated 3 per cent against the currencies of the region's biggest trading partners since August 16th and it rose to a record against the dollar last week.

Outgoing International Monetary Fund (IMF) managing director Rodrigo Rato appeared to endorse European concerns about the decline in the dollar; a subject that threatens to be a cause of discord at the Group of Seven summit and IMF annual meeting this month.

In comment during an interview with the Financial Times, Mr Rato said the dollar was now "undervalued" on many measures - an unusually bold assessment. He warned against excess volatility in currency markets. "What we would like to see is not sudden changes," he said.

Mr Rato also said the credit squeeze would force governments worldwide to make substantial changes to their budget plans. Stating that this was a "serious crisis" that was not over yet and would curtail growth worldwide, he added: "Policymakers should not think that the problems will stay at the desk of the bankers. Problems are going to come to the real sector, come to the budgets - that is something we keep telling people."

Meanwhile, EU finance ministers will today warn banks and other financial institutions that they cannot expect to be bailed out by public funds if they are plunged into crisis by the credit crunch.

"The use of public money to resolve a crisis can never be taken for granted," say the draft conclusions of today's meeting of economy and finance ministers in Luxembourg.

The 27 ministers have been discussing the issue since before the US subprime mortgage crisis erupted in August and have come under pressure to commit taxpayers' money to help out European banks should they be hit by crisis.

In the wake of funding problems that hit Northern Rock in Britain and two German banks, IKB and Sachsen LB, EU governments will refuse to commit public money to a bailout, diplomats said.