EU Ministers Welcome Dollar's Gains Against Euro Amid Slowdown

By Sandrine Rastello

Sept. 16 (Bloomberg) -- European Union officials regard the dollar's advance against the euro as welcome respite for their economies at a time when several countries are close to a recession, according to a draft of an internal EU document.

``Excessive volatility on exchange-rate markets is undesirable for economic growth,'' ministers from the 27 EU nations said in the document, which was agreed to three days ago at a meeting of finance ministers and central bankers in Nice, France. ``The recent re-appreciation of the U.S. dollar vis-a-vis the euro and other European currencies is welcome,'' according to the draft, which was obtained by Bloomberg News.

The euro has fallen more than 10 percent since reaching a record $1.6038 on July 15. While the drop in crude oil prices is also providing support, the region's economy shrank in the second quarter and is still struggling amid slowing global demand and the continuing credit squeeze.

The ``near-term outlook for growth remains relatively weak'' and inflationary pressures should ease ``in the next few months,'' according to the document, which is a summation of the talks on Sept. 12-13 in Nice and will be the basis for discussions at the finance ministers' next meeting in early October in Luxembourg.

The European Commission on Sept. 10 lowered its economic- growth forecast for the 15-nation euro area and predicted a recession this year for Germany and Spain, as well as the U.K., which does not use the euro. The region's economy probably won't grow in the current quarter after the first contraction since the euro was introduced in 1999, according to the commission.

`Remains Overvalued'

``The depreciation of the euro is welcome even if the euro remains overvalued,'' Luxembourg Finance Minister Jean-Claude Juncker, who chairs the group of counterparts from the euro region, said on Sept. 12 in Nice.

``I'm pleased that today the euro is slightly below $1.40,'' French Finance Minister Christine Lagarde said Sept. 11 in Nice. Belgium's Didier Reynders said the currency now reflected ``fundamentals.''

The ministers also said it's ``crucial'' to let the ``necessary adjustment'' in exchange rates occur ``in some emerging economies with large and growing current-account surpluses,'' citing China specifically. The Chinese yuan has gained 10 percent against the euro since the start of the third quarter, following a 2.5 percent gain in the second quarter and a 3.2 percent decline in the first.

Currency Developments

The EU will ``closely'' monitor currency developments, including through a continuing dialogue between European and Chinese officials, according to the document. Juncker said in July that he and other EU officials will probably next meet their counterparts from Beijing around the time of the EU-China summit on Dec. 1 in Lyon, France.

The document calls for a ``coordinated response at the EU level'' to the economic slowdown. In it, ministers repeat a pledge to pursue fiscal discipline and to continue structural changes to their economies and demand further efforts to boost transparency in financial markets.

It also confirms the European Investment Bank will lend up to 15 billion euros ($21.3 billion) through 2009 to support small- and medium-sized enterprises.

To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net.