Irked by the relentless ascent of their currency, euro zone finance ministers have decided to target China's yuan as the chief culprit in a quest for fair play on global exchange rates and trade.
The message, however, met a predictable response in Beijing no sooner than the ink on their statement had dried on Tuesday.
China would stick to a policy of gradual change towards a more flexible exchange rate, a Foreign Ministry spokesman said.
The euro zone ministers made their point during a two-day meeting in Luxembourg where they hammered out a common stand for an Oct. 19 meeting of the G7 industrial powers -- the United States, Japan, Canada, Britain and euro-zoners Germany, France and Italy -- where China will be absent.
They reiterated pleas to financial markets to heed U.S. statements that a strong dollar was in U.S. economic interests and urged them again to take account of Japan's improving economy.
The novelty was a clear shift of focus to China, where Europe has until now let Washington do most of the tough talking, with limited results.
"First point China, second point dollar, third point yen," Jean-Claude Juncker, chairman of the meeting, said.
He and European Central Bank President Jean-Claude Trichet will visit Beijing before the year-end with European Economic and Monetary Affairs Commissioner Joaquin Almunia.
"In emerging economies with large and growing current account surpluses, especially China, it is desirable that their effective exchange rates move so that necessary adjustments will occur," the euro zone statement said.
Economists were skeptical, asking why Europe would succeed in inducing rapid change where U.S. Treasury Secretary Henry Paulson had so far secured little.
Trichet said requests for a more flexible policy from China had been made since 2004 and he was keen to avoid the impression that Europe was getting heavy-handed.
"We are sticking to our guns. We are saying the same thing to all of emerging Asia, not just to the Chinese, since the (G7) meeting in Florida at the beginning of 2004," he told members of the European Parliament in Brussels.
In Beijing, Chinese Foreign Ministry spokesman Liu Jianchao told a regular news briefing: "On this issue, China has repeatedly enunciated its stance. China will continue making the relevant arrangements according to this flexible exchange rate policy. We are willing to engage in dialogue and consultation with concerned parties on this issue."
The euro has risen more than 20% against the dollar and yen since its launch in January 1999, and the appreciation has been around 10% in just the last 12 months.
China has allowed its currency to rise marginally versus the dollar over the past two years but let it slide against the euro in equal proportion, compounding the feeling that the euro zone is carrying the can for global currency mismatches.
"We note that the euro is playing its role for an orderly reduction of the imbalances," the euro zone statement said.
While a rising euro can help limit the cost of oil, which is priced in dollars, and thus curbs inflation, it makes it harder for exporters to compete on price in world markets, where the yuan also sets a benchmark that many others in Asia follow.
The ministers were joined by their colleagues from the rest of the European Union's 27 countries on Tuesday and spent much of their time discussing embryonic ideas for better supervision of financial markets to avoided crises like the credit crunch spawned by defaults in U.S. high-risk mortgage markets.
The currency talks had been billed as a test of whether the 13 euro zone governments agreed the exchange rate was getting out of hand and how determined they would be to press the case in the G7, where the United States and Japan are far from rushing to the rescue.
China is not a member of the G7 although its economy is now the world's fourth largest and its exchange rate has caused friction since the country joined the World Trade Organisation in 2001, triggering a boom in its exports.
Papering Over the Cracks
France has complained loudly in recent weeks about the strength of the euro, with clear support from Italy, but Germany, the world's top exporter, kept its distance.
German Finance Minister Peer Steinbrueck did so again. After saying on Monday "I prefer a strong euro," he added in a news conference on Tuesday: "I prefer a stronger euro to a weaker euro, and I would like a strong dollar, I would like a strong yuan and I would like a strong yen."
His Dutch and Austrian colleagues took a similar line.
That jarred with a campaign being waged by French President Nicolas Sarkozy, but French Economy Minister Christine Lagarde, regularly reduced to the role of emissary, said she was happy with the outcome of the Luxembourg talks.
"After good debates we came to final conclusions that we shared and that we all support in anticipation of the G7 meetings, so that is good, that is excellent," she said.
Whether Sarkozy will consider it sufficient and stop urging the ECB to reduce its interest rates, one of the prime determinants of the euro's exchange rate, is another thing.
Europe is not alone in finding fault with exchange rates.
Rodrigo Rato, head of the International Monetary Fund, said in newspaper interviews the U.S. dollar was undervalued and he also urged greater flexibility from Beijing on its currency.
European officials have admitted in private that Washington is no more willing than in the past to lend Europe a hand if the euro zone demanded it.
It may even be happy to see the dollar weaken for the sake of its exports, at a time when the U.S. economy is struggling with a housing downturn and a mortgage crisis that has triggered a global credit squeeze.
Without G7 consensus, or at least U.S. support, the markets see next to no risk of central banks intervening in an attempt to impose their will.