Euro zone needs exchange rate policy, says Hollande

French President Francois Hollande called on the euro zone on Tuesday to develop an exchange rate policy to protect the currency from “irrational movements”.

His comments came amid growing concern within his Socialist government that the euro, now trading around 1.35 to the dollar, is too strong and could undermine the country’s exporters and hence wider economic growth.

Hollande said that competitiveness reforms under way in many euro zone countries including France risked being undermined by the euro’s exchange rate with key trading partners, but he stopped short of calling for exchange rate targets.

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“Europe... is leaving the euro vulnerable to irrational movements in one direction or the other,” he said in his first speech as president to the European Parliament in Strasbourg.

“A monetary zone must have an exchange rate policy or else it ends up being subjected to an exchange rate that does not match the true state of its economy.”

Hollande said the European Central Bank should remain independent and called instead for a reform of the international monetary system to better protect European economic interests. He did not spell out what reforms he had in mind.

His remarks came after Industry Minister Arnaud Montebourg called for a weaker euro to help French exports, as the French government tries to revive a weakening manufacturing sector and narrow a large trade deficit.

“This is not about externally setting a target for the European Central Bank, which is independent, but about engaging the essential reform of the international monetary system,” Hollande said.

He added that countries with strong exports, which is the case of Germany and several Nordic nations, should stimulate internal demand to create a fairer balance in the 27-member European Union.
 

(REUTERS)