PARIS, Jan 27 - Europe stepped up pressure on the United States on Tuesday to join efforts to curb the euro's strength against the dollar, appealing for dialogue ahead of a key meeting of major industrialised economies next week. European Commission President Romano Prodi told reporters in Paris that Washington and Brussels had to discuss developments on the foreign exchanges as they prepare for the Group of Seven meeting on February 6-7. "I think we have to open a strong dialogue with the United States on the dollar," Prodi said on the sidelines of a French parliament seminar on the euro. His comments came a day after U.S. Treasury Secretary John Snow said fostering economic growth, rather than currencies, would top the agenda of the G-7 finance ministers meeting in Boca Raton, Florida. "Dialogue would not rule out the bank taking a decision," Prodi added, referring to the European Central Bank (ECB). There is speculation the ECB could cut interest rates to stem the euro's rise against the dollar. Alternatively, it could intervene directly on foreign exchange markets, a process usually coordinated with other central banks. French Treasury Director Jean-Pierre Jouyet, attending the same seminar as Prodi, said the G7 industrial powers were able to liaise continually on foreign exchange rates and always had the power to engage in intervention, a means of using currency reserves to buy and sell so as to influence currency trends. "As has been said on numerous occasions, we have means of intervention and these means are always available," he said.
Europeans are concerned that the 20 percent rise in the euro against the dollar in the last year is threatening to curb exports and jeopardise the region's fragile economic recovery. The euro traded at around $1.2490 in early afternoon in Europe. Most companies in Germany, the largest national economy in the euro zone, see their "pain barrier" at a euro-dollar exchange rate of $1.30, said Gernot Nerb, a senior economist at the Ifo economics research institute. "One sees already that it is hurting," Nerb told . "One could imagine that the ECB might cut interest rates again," he added. "The question is whether it will wait until the G7 meeting at the beginning of February or whether it makes a slight preemptive cut before then." Jouyet was asked whether concerns about currency movements expressed recently by the ECB and euro zone finance ministers were a precursor to potential intervention on the foreign exchange markets. He replied: "That's not what I said. I said intervention is a means that is always available."
STRONG DOLLAR POLICY
U.S. Undersecretary for Trade Grant Aldonas, attending the same euro seminar in Paris, said that the United States had no political strategy on currency matters and that Washington had made it clear the United States had a strong dollar policy. Only President George W. Bush and Snow spoke on the dollar, he said, adding: "They made it very clear that it's strong dollar policy in the United States." Aldonas repeated Snow's message that the United States wanted to focus on economic fundamentals at the G7 meeting in Boca Raton. "What we need to see in Europe is stronger growth," he said. Snow will chair the meeting of finance chiefs from the G7 countries -- the United States, Japan, Germany, Britain, France, Italy, and Canada. Jouyet said Canada too was worried about the U.S. dollar fall. "If the Europeans are worried, and we all are, other countries that are close to the United States -- I'm thinking of Canada -- have encountered the same changes as the euro and they are also worried," he said. Fred Bergsten, director of the Institute for International Economics in Washington, said after attending a meeting with G7 deputy finance ministers on Monday that the G7 wanted to put pressure on China and other Asian nations to let their currencies rise. Bergsten's comments echoed speculation in markets that the big economic powers want to smooth the depreciation of the dollar by allowing the yen and Chinese yuan to rise. At their last meeting in Dubai in September, the G7 called for more currency flexibility, in remarks that G7 officials said in private were aimed at urging Asian economic powers China and South Korea to stop fixing their currencies so tightly to the falling U.S dollar. The statement issued in Dubai has however been much maligned since then for lack of clarity and the markets took it mainly as a cue to keep selling dollars.//