Europe Economy

France's Lagarde Says Wants ECB to Examine Euro


The European Central Bank needs to look at the impact of the high-flying euro when it meets next month and draw the appropriate lessons, French Finance Minister Christine Lagarde said on Friday.

Speaking to reporters after two days of meetings in Beijing, Lagarde said she shared the concern of French businessmen that the euro's rise to record highs against the dollar is eroding their competitiveness.

"We hope that the ECB will examine the consequences and react appropriately," she said.

The euro briefly rose above $1.41 on Friday, the highest level since the single currency was launched in 1999, buoyed by a half-point U.S. interest rate cut earlier this week and expectations of more cuts to come.

Lagarde said she was concerned about the impact not only of the euro-dollar rate but also the euro's rate against China's yuan and the Japanese yen.

Unbalanced Rates

She said she had raised the issue of unbalanced exchange rates both with Chinese Finance Minister Xie Xuren and Premier Wen Jiabao.

She said there was a need for all countries affected by currency imbalances to think about how to engineer greater stability in financial markets.

Lagarde did not go into detail except to say she had proposed to Wen very broadly that China should swap a little bit of its strong growth for some of the European Union's low inflation.

The result would be a slightly weaker euro and a slightly stronger yuan, she said.

The yuan has appreciated by a total of about 10% against the dollar since it was revalued and decoupled from a dollar peg to float within managed bands in July 2005.

During the same period, it has weakened against the euro by about 4.7%.

Lagarde said the issue of inflation in China came up during all of her meetings in Beijing. She said officials are clearly preoccupied by inflation, which rose to a 10-year high of 6.5% in the year to August.