Europe Finance Chiefs Prod China to Let Its Currency Strengthen

(Bloomberg) -- European finance ministers pressed China to let its currency strengthen so their economy no longer bears the brunt of the drop in the U.S. dollar.

With the dollar plumbing record lows against the euro this month, the officials meeting yesterday in Brussels complained the European economy is shouldering a disproportionate share of the U.S. currency's decline and urged the Chinese government to share the pain by allowing the yuan to rise more broadly.

European governments expect ``some adjustment with respect to the exchange rate'' in China, Finance Minister Michalis Sarris of Cyprus told reporters. Spain's Pedro Solbes said there should be a ``rebalancing with the Asian currencies.''

The officials are stepping up complaints two weeks before a European delegation led by Luxembourg Finance Minister Jean- Claude Juncker, EU Commissioner Joaquin Almunia and European Central Bank President Jean-Claude Trichet arrives in Beijing to make their case for exchange-rate revaluation directly to the Chinese. The topic is also high on the agenda of this week's meeting of the Group of 20 near Cape Town.

``We'll try to make clear to our Chinese friends and counterparts that China has a growing responsibility as far as international monetary policy is concerned,'' Juncker said. He played down the likelihood of any imminent shift from China by noting it will take more than the trip for the ``whole world to change.''

While the yuan has gained 5 percent against the dollar this year, the currency has dropped 4 percent against the euro, hurting Europe's exporters and forcing its trade account closer toward deficit.

Trade Gap

China's trade surplus rose to a record $27.05 billion in October, an increase of 13.5 percent from a year earlier, the country's custom's bureau said yesterday. The euro-area trade gap with China widened 25 percent to a record 59.9 billion euros ($87.1 billion) in the seven months through July, according to data released Oct. 18 by the European Union's statistics office.

Trichet said Nov. 8 that it is ``essential'' that China step up to its ``global responsibilities'' after the ECB chief complained that recent currency-rate shifts have been ``brutal.'' Juncker agreed that the ``recent sharp moves in exchange rates are unwelcome.''

Businesses are making similar complaints, with Ernest- Antoine Seilliere, president of BusinessEurope, the European employers' federation, telling the ministers in a speech that an undervalued yuan is ``damaging for the global economy and in particular for Europe.''

`Signal of Confidence'

Not every European official is worried by the euro's gains, which have amounted to a 7 percent jump against the dollar since August. In an interview yesterday in Rome, European Commission President Jose Barroso said a strong euro is preferable to a weak one and is a ``signal of confidence in the European economy.''

The euro ``reflects the confidence people have in the European economy, which means we are doing well,'' Dutch Finance Minister Wouter Bos said in Brussels.

Almunia and Juncker both predicted the turbulence in financial markets that began in August will continue to pose a threat to Europe's expansion, although how much remained in doubt.

``The financial-market turmoil is not over,'' Almunia said. ``The longer the trend, the higher the risks are that the economy will be affected negatively.''