Germany and France clash over the threat posed by strong euro

City A.M. Reporter
GERMANY said yesterday the strong euro was not a concern and signalled opposition to a French proposal for a mid-term target rate, exposing policy divisions over mainland Europe’s currency.

The comments from Berlin, where most politicians are firmly opposed to currency intervention, precede talks later in the day between Chancellor Angela Merkel and French President Francois Hollande.

Those talks, which will take place partly over a football match, may set the tone for today’s EU summit which aims to secure a deal on the bloc’s long-term budget and a G20 summit in mid-February where global leaders are expected to discuss currency issues.

The focus of that debate is likely to be Japan, where a new monetary and fiscal policy drive has significantly weakened the yen.

“If you look at the historic context, the German government is of the view that the euro is not overvalued at the moment,” Merkel’s spokesman Steffen Seibert told a regular news conference, in unusually strong comments on exchange rates.

The euro firmed to $1.3535 from around $1.3506 after the remarks. Last week it peaked at $1.3711, its highest level since November 2011.

On Tuesday Hollande proposed that the Eurozone should agree on a “medium-term” exchange rate and act on global markets to protect its interests.