EU:EU LEADERS have warned that the sharp rise in the strength of the euro, combined with significant food and energy inflation, pose a threat to the European economy.
They also called on banks yesterday to fully disclose the liabilities they face as a result of the US subprime mortgage crisis and the turmoil engulfing financial markets.
"Excessive volatility and disorderly movements in exchange rates are undesirable for economic growth. In the present circumstances, we are concerned about excessive exchange rate moves," said EU leaders in a late change to the formal summit conclusions.
The explicit warning about the strength of the euro is the strongest signal yet that policymakers fear the falling US dollar threatens to hurt European exports and dampen economic growth. But the statement made no explicit reference to the need for the European Central Bank (ECB) to depress the strength of the euro by cutting interest rates.
The ECB has so far shied away from cutting interest rates sharply, despite strong political pressure exerted by French president Nicolas Sarkozy. "It was inconceivable that the European Council could remain silent on this point," Mr Sarkozy said at the EU summit.
But EU leaders also noted that "recent significant increases in food and energy prices" had contributed to inflation and said there was a need to avoid "distortionary policies". They called on the EU to identify the reasons behind the increase in commodity and food prices and to try to seek solutions to remove any possible supply shortages in the future.
The downbeat economic message from Europe's leaders noted that the global economic outlook had deteriorated recently as a result of the slowdown in the US, higher oil prices and ongoing turbulence on financial markets.
The summit called on banks for a "prompt and full disclosure of exposures to distressed assets".