The euro's gains are harming the economy of the 15 nations sharing the currency and may exacerbate a forecast slowdown in growth, European officials said.

“We cannot live with a euro at this level with three other currencies which are weak,” France's European Affairs Minister Jean-Pierre Jouyet said Friday in an interview in St. Julians, Malta. He was referring to the yuan, the yen and the dollar. “The real problem for growth is the imbalances between the different currencies.”
The euro gained 15 percent against the dollar in the past 12 months, reducing competitiveness and intensifying unease that governments will not be able to cope with the anticipated slowdown in the economy this year. The European Commission is expected to cut its 2008 growth forecast as a result of the fallout from the financial-market turmoil in the U.S.
The Brussels-based commission may predict an economic growth rate of 1.8 percent or 1.9 percent compared with an earlier estimate of 2.2 percent, said Jean-Claude Juncker, who chairs meetings of euro area finance ministers. Growth was an estimated 2.6 percent last year.
The euro's gain against the dollar has been driven in part by the shrinking interest-rate gap between the U.S. and Europe. The dollar fell for a third week versus the euro, its longest losing streak since November, on speculation the Federal Reserve will increase the pace of interest rates to avoid a recession.
Fed Chairman Ben S. Bernanke said Jan. 10 that more interest-rate cuts “may well be necessary” after 1 percentage point of reductions since September. The comments increased speculation the Fed will cut its benchmark rate by half a percentage point, to 3.75 percent, this month.
European Central Bank President Jean-Claude Trichet kept the main refinancing rate at 4 percent on Jan. 10 and said the central bank will “not tolerate” an inflation spiral. A half- point reduction by the Fed would take borrowing costs in the U.S. below those in Europe for the first time in more than three years.
Trichet today said Malta, which joined the euro on Jan.1, must keep a lid on labor costs to slow inflation. ``It is particularly crucial for the competitiveness of the Maltese economy that the current one-off shocks to inflation do not lead to second-round effects in prices and wage settings,'' he told central bankers and EU officials at a ceremony in Valletta, Malta.
The Italian prime minister and Slovenian finance minister joined the French protest against the strong euro. “Of course it's a concern, everybody is concerned,'' Romano Prodi told reporters in St. Julians late Thursday.
“This is of concern to all of us,” Slovenia's Andrej Bajuk said today, referring to the euro's gains. “After all, exchange rates should reflect the economic fundamentals of different parts of the world.”
France's trade deficit widened to a record in November, prompting a call from Finance Minister Christine Lagarde on Jan. 9 for a new push to weaken the euro.
While French demands that the yen must appreciate have had little support so far, European Union leaders have become more outspoken on the yuan. China became the euro area's biggest supplier, overtaking the UK and adding urgency to Europe's campaign for a stronger Chinese currency.
Still, Monetary Affairs Commissioner Joaquin Almunia signaled the EU executive is optimistic the euro won't derail the expansion.
(Source: Bloomberg)