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EU leaders rally against currency ‘war’ fears

BRUSSELS — European leaders will urge G20 partners to use a summit in South Korea next month to “avoid” 1930s-style protectionism amid fears of a “war” on currency exchanges, according to a draft of European Union conclusions seen by AFP on Friday.

The text the 27 EU leaders are expected to sign up to in Brussels on October 29 “stresses the necessity to avoid all forms of protectionism and to avoid engaging in exchange rate moves aimed at gaining short term competitive advantage.”

In South Korea on Friday, the United States urged ministers from the Group of 20 developed and emerging economies to reform their currency regimes to shore up the fragile world economy after a devastating two-year crisis.

But the US position met resistance.

G20 finance ministers and central bankers opened a two-day meeting stalked by warnings of an all-out “currency war,” as painted by Brazil’s finance minister, between debtor nations such as the United States and export powerhouses such as China.

EU nations that share the euro currency have implicitly complained that a sharp rise in the yuan’s value stems from Beijing policies that boost the competitivity of Chinese exports.

But the United States has also come into the eurozone’s sights recently.

The EU summit conclusions can be modified overnight on October 28 depending on the evolution of two-day talks roundly focused on changing the EU’s Lisbon Treaty to tighten budgetary discipline around the euro currency core of the world’s biggest trading bloc.

However, following a preparatory green light by ambassadors, EU governments will state their concern that “the rebalancing of world growth also requires particular attention,” alongside “fiscal consolidation plans, regulatory reform and the need for further structural reforms.”

The conclusions highlight ongoing “risks” to sustained, global economic recovery through “re-emerging global macroeconomic imbalances” as well as commodity price volatility, high unemployment and “incomplete financial repair” after the post-crisis retreat of credit.

Markets need to remain “open,” the leaders will stress, also giving their backing to World Trade Organization chief Pascal Lamy, who attempted again this week to jolt stalled decade-long talks on a global trade deal, known as the Doha Round, into renewed vigour.