The European Union does not intend to intervene in currency markets, said Minister for Finance Michael Noonan yesterday as the G7 nations pledged not to target exchange rates.
The statement, issued ahead of Friday’s G20 summit in Moscow, was designed to ease market concerns about possible intervention in currency markets amid growing international tension about exchange rates.
However, reported comments from a US official expressing concern about excess movement in the Japanese yen caused a flurry of market instability.
The dollar was down 1.2 per cent against the yen at 93.14, having risen to 94.42 yen on Monday, according to Reuters, the highest since May, 2010.
Euro fell
The euro fell 0.9 per cent to 125.30, after a 2 per cent rally on Monday.
Mr Noonan will represent the European Union at the G20 summit later this week, where tensions around currency exchange rates will be discussed. Concerns about a potential currency war have been prompted by signs from Japan of an expansion of monetary policy which has meant a weaker yen. France has called for Europe to tackle the strengthening euro, but the European Central Bank has warned against intervention.
Speaking ahead of a European finance ministers meeting in Brussels, Mr Noonan rejected calls for Europe to intervene.
“We’ve come through a period where the concern was the instability of the euro. It’s a bit soon to be arguing that it’s too strong. We’ll follow the line of the European Central Bank that we don’t think this is a policy issue that should be pursued,” he said.
‘Economic fundamentals’
His comments were echoed by EU economics and monetary affairs commissioner Olli Rehn, who said that currency intervention would be “against the spirit of the G20”.
Speaking after a meeting of EU finance ministers in Brussels, Mr Rehn said that exchange rates should “reflect economic fundamentals and be market-orientated” though he pointed to previous European Commission research which showed that a strong appreciation of the euro would affect southern, high-deficit countries in the EU relatively more because their exports are more price sensitive.
On Cyprus, which is in talks with Europe and the IMF about the terms of a €17.5 billion bailout, Mr Rehn said Cyprus’s debt would not be restructured to impose losses on private creditors, as was implemented in Greece through so-called Private Sector Involvement (PSI).
“The European Commission is not working on any PSI option for Cyprus,” he said. “Greece is a specific candidate and unique case.”
