Yves Logghe, Associated Press
BRUSSELS — The recent swings in the foreign exchange markets and the dangers of the export-sapping rise in the value of the euro were being debated at a meeting of European finance ministers Tuesday ahead of a gathering of the world's leading industrial and developing economies.
Exchange rates and the threat of a "currency war" are expected to feature heavily at the Group of 20 meeting of finance chiefs in Moscow on Feb. 15-16. There have been fears voiced across Europe recently that the rise in the value of the euro against other currencies, such as Japan's yen, would make the region's exports more expensive and thereby hold back any economic recovery.
However, in an attempt to calm these concerns, the Group of Seven leading industrial nations — which includes the United States, Japan as well as Europe's France, Germany and Italy — issued a statement affirming their commitment to exchange rates determined by the markets and not government policy.
"We are agreed that excessive volatility and disorderly movements in exchange rates can have adverse implications for economic and financial stability," the G-7 said in a statement Tuesday published on the Bank of England website. "We will continue to consult closely on exchange markets and cooperate as appropriate."
Much of the recent volatility in foreign exchange markets has been a by-product of developments affecting the Japanese yen, which dropped Monday to its lowest against the dollar since May 2010. Though the Japanese government has not directly intervened to get the value of the yen down, it has set in motion a series of economic policies, such as a higher 2 percent target for Japanese inflation that many in the markets think will lead to more money being created in Japan.
One parallel effect of that policy has been a rise in the euro. It is now trading consistently above the $1.30 mark that many politicians and businesses think is fair-value. A higher exchange rate makes life potentially more difficult for exporters and may hold back economic recovery in the 17 European Union countries that use the euro. Figures later this week will likely confirm that the eurozone economy remained in recession in the final three months of 2012.
Marc Ostwald, market strategist at Monument Securities, suggested the G-7 statement was intended to take foreign exchange matters off the table at the G-20 meeting.
However, he said domestic policies in places such as Japan have spillover effects into foreign exchange markets, "so one might well argue that this is a case of not being able to see the wood for the trees."
Arriving Tuesday for a meeting of the 27 EU finance ministers, Irish Finance Minister Michael Noonan said there would be discussions about what might be discussed at the G-20 meeting. Several EU finance ministers, including those from France, Germany and Italy and Spain, will make the trip to Moscow. The EU will also be represented there.
"I think all this debate about the relative value of currencies is going to be an issue at the G-20 but we're coming through a period where the concern was the volatility of the euro," Noonan said. "It's a bit soon to argue that it's too strong."
Noonan said he wouldn't support any proposals that the ECB should intervene in the markets to get the value of the euro down.
Nevertheless, there are growing fears that a currency war may be in the offing. Such talk conjures up images of the 1930s when countries engaged in tit-for-tat depreciations — the outcome was to decimate world trade and prolong a depression.
French finance minister Pierre Moscovici has been one of those that have expressed some discomfort over the recent appreciation of the euro. However, on his way in to Tuesday's meeting, he said his priority was making sure that Europe does not remain "an area of long-lasting ??low growth and high unemployment."
He said what is needed is balanced policies— continuing budgetary consolidation while remaining aware of the effects of austerity. The G-20, he added, can be a forum for global coordination.
- Obama OKs federal aid for West Virginia; at...
- Officials: California wildfire destroys 200...
- Trump camp scrambles to shape up before GOP...
- Past few days 'difficult' for former...
- At least 7 stabbed at protest outside...
- BET Awards full of Prince tributes and...
- Chile wins 2nd straight Copa America title as...
- Asian stocks mixed as markets await Brexit...
- House Republicans' report faults Obama... 54
- The pro-life plan that could reverse... 38
- Did Trump really just become a... 37
- Big ruling for abortion rights in... 36
- Mitt Romney says family still wants him... 35
- Final Benghazi report: No 'smoking gun'... 31
- Supreme Court abortion decision could... 31
- Trump gets rock-bottom ratings in... 27