French minister warns of catastrophe if dollar continues to fall against euroBy Peggy Hollinger in Paris, Steve Johnson in London, and Jennifer Hughes in New York
Published: December 23 2004 21:29 | Last updated: December 23 2004 21:29
SourceHerve Gaymard, France's new finance minister, yesterday warned of a global “economic catastrophe” if the US, Europe and Asia did not work together to stem the decline of the dollar against the Euro.
As the dollar reached new lows against the European currency, Mr Gaymard voiced the strongest criticism yet from a European finance minister of the dollar's decline, saying it was “absolutely essential” that the US understood the need for “co-ordinated management at the world level” at the next G7 finance ministers meeting in February.
“If we stay as we are, with no co-ordination, one can imagine a catastrophic economic situation at the global level,” he said. However, as the “strong dollar” policy espoused by John Snow, US Treasury secretary, is nothing more than a laissez-faire “markets know best” approach, most in the currency market believe Mr Gaymard's appeal will fall on deaf ears.
“His outburst is regarded as toothless. Co-ordinated intervention strikes the market as off the radar screen at the moment,” said Mark Cliffe, chief economist at ING Financial Markets.
Mr Gaymard, who took over the portfolio only three weeks ago, was speaking on a visit to a General Motors factory in Strasbourg. He was responding to a question from a local businessman, but Mr Gaymard's comments reflect wider concerns that Washington's refusal to help stem the dollar's decline could hurt European competitiveness.
The dollar is set to record a third straight year of losses for the first time since 1987, when the world's leading nations signed the Louvre Accord to bring stability to exchange rates.
French concern over the falling dollar reflects worries about its export and growth prospects as it struggles to meet its eurozone obligation to keep its budget deficit below 3 per cent of GDP.
Despite calls from politicians for intervention in foreign exchange markets, Jean-Claude Trichet, president of the European Central Bank, has not gone further than saying recent currency moves are “unwelcome”. Yesterday the US dollar fell to a record low, reaching $1.3502 against the Euro before easing back to $1.3488. Additional reporting by Ralph Atkins in Frankfurt