France in ‘vigilance’ plea on falling dollar

France on Monday led European concern over the rising euro in an apparent attempt to put pressure on the European Central Bank not to jeopardise eurozone growth prospects ahead of next year’s French presidential election.

Thierry Breton, France’s finance minister, urged “collective vigilance” in the face of the falling US dollar. He promised to raise the euro’s recent rally with fellow eurozone finance ministers at their monthly meeting in Brussels on Monday night.

In spite of recent foreign currency movements, the ECB is expected to press ahead with another quarter-point rise in its main interest rate to 3.5 per cent next week. But, if sustained, the euro’s appreciation could curb the scope for further rises in borrowing costs in 2007. Mr Breton’s initiative may have been aimed at setting the tone in the debate on monetary policy action beyond the December 7 ECB meeting.

French anxiety, which compared with a more relaxed mood in Germany, has been heightened since the economy ground to a halt unexpectedly in the third quarter, after an exceptionally strong second quarter. That has prompted economists to cut their growth estimates for the year to the bottom of the government’s target of 2-2.5 per cent.

A French official said Mr Breton had deliberately changed his tone on the euro, from saying it was “fully valued” when it was trading at $1.24-$1.28 against the US dollar, to calling for “collective vigilance” now it was above the $1.30 mark.

But Olivier Garnier, economist at Société Générale asset management, said the ECB was becoming “a favourite scapegoat for politicians”, letting them score points with voters by criticising the euro or interest rates, without being punished by financial markets.

Ernest-Antoine Seillière, president of Unice, the European employers’ organisation, also said the ECB and eurozone finance ministers should be “more concerned about currency developments” and that the ECB should put interest rate increases on hold.

However, Jean-Claude Juncker, Luxembourg prime minister and political head of the eurozone, played down fears about the impact of the rising euro on exporters. “I don’t think we have to be concerned now,” he said. “We are lengths away from the critical zone.”

Mr Juncker believes the eurozone economy’s revival is robust enough to survive a rise in the exchange rate and says he was more concerned when the euro was so weak that it was trading below parity with the dollar.

In recent months, Mr Juncker has tried to restrain fellow ministers from making implicit criticisms of the ECB’s interest rate policy, which he fears are counterproductive.

However, his colleagues around the table are less phlegmatic, particularly those from countries such as Spain, with industries struggling to maintain competitiveness on world markets.

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