German Chancellor Angela Merkel’s government dismissed calls by French President Francois Hollande to steer the euro’s exchange rate, saying currencies should be determined by the market and not managed.
As Merkel travels to Paris today to meet with Hollande on the eve of European Union budget talks, German government spokesman Steffen Seibert didn’t rule out a discussion over the French president’s warning about a rising euro. Hollande said yesterday that euro leaders can’t allow the single currency to fluctuate “according to the mood of the market.”
“Exchange-rate policy isn’t an appropriate instrument to boost competitiveness; it relies on short-term stimulus through targeted depreciation,” Seibert told journalists in Berlin. “Sustained competitiveness can’t be achieved in this way.”
The clash comes as investors shake off concern about the European debt crisis, with the euro climbing 10% in the last six months to as high as $1.37 on Feb. 1. Hollande broke with Germany’s market-based approach to say the 17-member currency area must use the currency as an export-promoting tool, as the U.S. and China do.
“We have to act at the international level to assert our interests,” Hollande told reporters at the European Parliament in Strasbourg yesterday.
Seibert warned against overestimating “historical comparisons” and said the single currency’s recent gain compensated for a “massive” depreciation during the crisis. The euro’s ascent in the past few months reflects a return of investor confidence in the currency, he said.
“That’s not such a bad thing,” Seibert said, adding that the Group of Eight and the Group of 20 were committed to allowing markets to determine currency levels.
The euro, which fell as low as $1.1923 in June 2010, about eight months into the sovereign-debt crisis, has lost about 1% this week against the greenback. It traded at $1.3512 as of 3:04 p.m. in Frankfurt.
The euro’s climb to a 14-month peak against the dollar and the highest in almost three years against the Japanese yen makes it harder for exporters to compete internationally at a time when the economy is struggling to shake off the crisis.
“I’ve heard that France wants to raise this issue -- there will certain be a discussion,” Seibert said.