Brussels, 04/02/2004
{{European Trade Union Confederation MESSAGE TO G7 Finance Ministers
“This week, the European Central Bank (ECB) and European finance ministers have two opportunities to help sustain recovery in the European economy”, says John Monks, General Secretary of the European Trade Union Confederation (ETUC). On 5th February, the governing council of the ECB has the chance to cut interest rates. And on 6th and 7th February, G7 finance ministers could take action to counteract the extreme volatility of the US/Euro exchange rate. “We need both to save the expected recovery from the turmoil on international exchange rate markets”.}}
A report by the ETUI European Trade Union Institute: “The strong euro : a threat to the recovery of the euro area ?”shows that the sharp appreciation of the euro is alarming. An overvalued euro is hitting European growth and the interest rate cuts that have thus far been implemented by the ECB have not gone far enough to offset this and make Europe its own motor for recovery.
The failure of the recovery to materialise in 2003 is directly linked to this turmoil on the exchange markets, which cost Europe almost a 1% percentage point loss in growth in that year alone. For 2004,the ETUI report warns that the additional appreciation that took place last December year will reduce growth from the expected 1.8% to only 1.3%.
By eliminating the possibility of speculative currency attacks and by building one big single currency area the euro has made us ‘masters of our own economic destiny'. The ETUC therefore calls upon European policy makers to take matters in their own hands and to use the euro to shield Europe from pressures on international financial markets:
- Narrowing the interest rate differential between the US (currently at 1%) and the euro area (still at 2%) will allow domestic demand to take over from external demand. It will also reduce the risk of a further strengthening of the euro by discouraging speculative capital inflows into the euro area.
- If G7 finance meeting fails to send a strong and convincing signal to financial markets that exchange rate volatility will be ended, then the ECB, the Commission and European Finance Ministers need to be ready to intervene directly on exchange markets and buy up foreign currency in order to stabilise the euros exchange rate. With the ECB as the central bank that is ‘printing' euros, there is no technical constraint to do so and build up foreign currency reserves.
- The ECB and the Euro-system of national central banks have to stop its policy of selling foreign exchange reserves, thereby adding even more upwards pressure on the euro. Over 2003,almost one fifth (!) of the total foreign currency reserve of the euro area - equivalent to 40 billion euros) was dumped on the exchange markets.