Strong euro leads to Europe wanting more say in world economy
As euro gains ground as the world’s second major currency, Europe deserves a greater say in the global economy, says EU official.14 April 2008
BRUSSELS - The European Union's top economy official has said that Europe deserved a greater say in the global economy as the strong euro gains ground as the world's second major currency.
EU economic and monetary affairs commissioner Joaquin Almunia said Friday that the rest of the world now sees the euro currency zone as "a pole of stability" and the currency had the potential to become even more important.
The euro is now second to the weak U.S. dollar as a reserve currency held by foreign investors and has risen sharply against the dollar in recent months, hitting a new all-time high of USD1.5912 on Thursday.
Almunia said the euro area is now "playing an increasingly important role in supporting the stability of the world economy and the global financial system".
"Non-EU countries increasingly perceive the euro area and the EU as a whole as a pole of stability, a source of new capital, and also a source of advice and expertise on regulatory approaches," he said in a speech to the Petersen Institute in Washington D.C.
His prepared remarks were distributed ahead of time by his Brussels office.
The EU official called for the 15 euro nations to share a single seat when world leaders meet to discuss the economy at the International Monetary Fund or the G-7 group of top seven industrialised nations.
In the G-7, this would come at the expense of euro users Germany, France and Italy which now represent themselves at these talks.
"Whether it concerns financial sector stability, exchange rate policies or fiscal surveillance, the euro area should make its voice heard in global debates which directly impact the euro area economy," Almunia said. "A single euro area chair in international foray remains the best solution."
The euro's greater role carried some risks, he warned, because it increased the region's exposure to shocks from other parts of the world and "disruptive portfolio shifts" between major currencies.
"It is precisely such shocks that are likely to occur more frequently in a world characterised by financial and economic globalisation," he said.
He again signalled worry about the U.S. huge current account deficit, saying a sudden "unwinding" could hit Europe hard, since its currency is still appreciating against the dollar.
The euro now makes up 26 percent of foreign exchange reserves and is the second most actively traded currency after the U.S. dollar on global foreign exchange markets.
Euro-dollar trades are the most popular foreign exchange deals, accounting for more than a quarter of global turnover.
[AP / Expatica]