France last night demanded a debate about the strength of the euro as global
currency wars threatened to spiral out of control.
French finance minister Pierre Moscovici said exchange rates "should not
be subject to moods or speculation" amid fears the single currency's recent
surge is damaging exports and the economy.
His comments at a meeting of eurozone finance ministers in Brussels
echoed those of French president Francois Hollande who last week tried to
blame the deepening economic crisis in his country on the strong euro rather
than his own failing policies.
The panic in France was dismissed by other European countries including
Germany but marked a new front in the currency wars threatening the global
economy. It is feared that countries could embark on tit-for-tat action to
weaken exchange rates to keep their exports cheap in a damaging race to the
bottom.
Officials are worried skirmishes in the currency markets could lead to a
disastrous new wave of protectionist trade policies like those that
exacerbated the Great Depression.
"Countries might resort to currency depreciation as a deliberate policy
instrument to stimulate exports and economic growth," said Neil MacKinnon at
VTB Capital. "If countries then resort to protectionist measures then world
trade suffers. In that scenario, there are no winners and the economic outlook
then begins to look very similar to the 1930s."
Jens Weidman, head of the German central bank, the Bundesbank, and an
influential figure at the European Central Bank, slapped down French concerns
about the euro. He said "politically-brought-about devaluations" do not lead
to improved economic competitiveness and added that the euro is "not seriously
overvalued."
