Europe calls on China to let currency appreciate

[October 05, 2010]  BRUSSELS (AP) -- The 16 nations that use the euro on Tuesday urged China to allow its currency to appreciate, stressing that the country's insistence on keeping the yuan weak is hampering global growth by creating trade deficits in the U.S. and Europe.

Luxembourg's Jean-Claude Juncker, head of the eurozone, EU Monetary Affairs Commissioner Olli Rehn and European Central Bank President Jean-Claude Trichet told Chinese Prime Minister Wen Jiabao that the yuan's "effective exchange rate remains undervalued."

China is under mounting pressure to loosen its tight grip on the yuan's value, which it keeps artificially low against the dollar and other key currencies, as Beijing's trade partners worry about their trade deficits with the world's biggest exporter and second-biggest economy.

"Given China's important role we do think that a significant and broad-based appreciation" of China's currency would "promote a more balanced growth to the benefit of both China and the global economy," said Juncker.

Echoing strong U.S. concerns, the three urged China to stoke more domestic demand -- a stronger currency would provide Chinese households with more power to purchase and import goods.

Juncker said Europe had welcomed China's June 19 decision to make the yuan's exchange rate more flexible but added that has not worked well enough.

The euro-yuan rate is not "what we would have hoped," the European leaders said.

In response to recent market speculation about a possible currency war, Juncker said, "this would be most destructive as would be any form of trade protectionism."

American manufacturers argue that China's currency is undervalued by up to 40 percent against the dollar. That makes Chinese products cheaper and more competitive in the United States and American products more expensive in China.

Last week, the U.S. House of Representatives approved legislation enabling Washington to seek trade sanctions against China and other nations for manipulating their currencies to gain competitive advantages.

The yuan has weakened against the euro in recent months, which could affect exports from the 16 countries that use the euro at a time when the region is struggling to maintain growth amid government cuts and worries about sovereign debt in some countries.

Wen met with the EU officials during a 48-nation Europe-Asia summit meeting.

On Monday, Wen told the gathering that the surging economies of Asia should be granted more power in the traditionally Western-dominated global financial institutions. Wen said Asia wants Europe to give up some of its seats at the International Monetary Fund, the international lender charged with helping countries that get into currency and financial crises.

[Associated Press; By GABRIELE STEINHAUSER]

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