Russia 'trusts and believes' in the euro: Putin

Russia 'trusts and believes' in the euro: Putin

23rd June 2010, Comments 0 comments

While Prime Minister Vladimir Putin says he has faith in the single currency, he thinks Europe needs to work out certain problems such as raising fiscal discipline.

Russia, which holds over 40 percent of its forex reserves in euros, trusts and believes in the single European currency and is sure its current woes are only temporary, Prime Minister Vladimir Putin said.

"We trust and believe" in the euro, Putin told AFP in an interview in early June in the southern Russian Black Sea resort city of Sochi.

"We would not hold such a huge amount of our currency reserves in the European currency if we did not."

The European Union is by far Russia's biggest trading partner and Moscow has warily eyed the financial problems that have hit the euro zone since the extent of Greece's budget problems became apparent.

Russia was itself hard hit by the global economic slowdown, with the economy contracting 7.9 percent last year, but it has managed to avoid a second wave of crisis like that suffered by debt-ridden Greece.

AFP PHOTO / POOL / ALEXEY DRUZHININ The powerful prime minister, seen by most as Russia's de-facto number one, said there was no objective reason for the plunge of the euro and he was sure its problems would not last.

"In my view, there exist no objective conditions for the fall of the euro," said Putin.

"Yes, there are some difficulties. I am certain they are only temporary."

The euro has suffered a dizzying fall over the last weeks over worries about the budget situation of several European countries, but has crept up again in recent days and analysts have said it appeared to be stabilising.

Putin however said Russia saw no need to change the structure of its reserves, held largely in euros and US dollars with around 10 percent in sterling and just over one percent in yen.

"On the whole, the European economic authorities are acting absolutely correctly.

"And this confirms yet again that we have no plans to change our relationship to the euro as a reserve currency and in its proportion of our reserves."

Russian President: Afraid for euro’s health
Russian President Dmitry Medvedev, who took over the Kremlin from Putin in 2008, has repeatedly suggested that new reserve currencies should be used to end the domination of the dollar.

Medvedev, who gave the final speech of the Saint Petersburg economic forum over the weekend, said Russia was concerned about a second wave of the economic crisis.

"We are very afraid for the health of the euro," said Medvedev.

"We wish it a speedy recovery because it is also our currency. It is not just a currency of the European Union, it is a currency which we use, because it is a reserve currency."

More work needed but fundamentals remain strong
Putin, whose own government is also seeking to implement economic reforms, said "much still needs to be done" in Europe to work out problems like raising fiscal discipline.

"But the fundamentals of the European economy are on the whole pretty strong," he said.

"No one has an interest in the collapse of the European Union."

The prime minister, who famously spent several years as a KGB agent stationed in Germany under the Soviet Union, also expressed admiration for the European Union.

The EU was "created with the strength of many generations, it was so hard to build, and I am convinced it is an absolutely correct process that is positive for the world as a whole, for the global economy, for global security".

Russia needs diversification
Putin said Russia needed to diversify its economy in order better to weather world economic turmoil.

This would be difficult however due to deeply entrenched structural aspects of the Russian economy as well as strong windfall profits from raw material exports that gave investors little incentive to develop other sectors.

"Obviously investors try to place their money in those sectors that bring the biggest returns quickly," he said.

Putin also said that the falling value of the euro was a boon for Europe's big export-oriented economies as it made their goods cheaper outside the eurozone.

"This creates certain difficulties for us though," he said, referring specifically to international competition between France and Russia in the civilian nuclear energy sector.

"When the euro is weak, French producers obviously get a bonus, a head-start," he said. "But it is a challenge for our own manufacturers" whose production increases relatively in price on world markets.

Christopher Boian / AFP / Expatica

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