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France repeats call for debate on euro's exchange rate

France returned to the attack over the strength of the euro on Thursday, calling for calm reflection on whether there should be an exchange rate policy despite clear hostility from Germany.

French Economy and Finance Minister Pierre Moscovici, who is worried that the rise of the euro will crimp recovery of the French and eurozone economies, said that European governments had an interest in raising the problem "in a serene way".

He also said that the global monetary system should be reformed, in an explicit reference to what some see as competitive devaluations by some countries.

The euro firmed on Thursday to $1.3567 from $1.3519 late on Wednesday, about 15 percent higher than last July.

Moscovici spoke on France Inter radio, just before a policy meeting at the European Central Bank in Frankfurt and as a European Union summit was about to begin, essentially on the EU's budget which has an impact on long-term policies to boost growth.

Moscovici and French President Francois Hollande have both raised concerns this week about a recent rise of the euro, which makes exports more expensive, with Hollande saying that the exchange rate of the euro could not be left to market forces of the moment.

On Wednesday, German government spokesman Steffen Seibert gave the official German view, saying that the euro was not over-valued and that any effort to hold down the euro would not have any lasting effect on competitiveness.

On Thursday, Moscovici, who has already said that France does not have a strategy for an offensive over exchange rates, repeated the French line saying that the rise of the euro was driven by two factors, "the return of confidence" in the eurozone economy and also "more aggressive monetary policies in other zones of the planet."

This second factor meant that "a reform of the international monetary system" was needed to guarantee the stability essential to the economies of the world which had become highly sensitive to export performance.

At European level, a debate had to begin, he said. "Let's be aware that there is an interest for the Europeans to raise in a serene way the problem of the exchange rate and without putting pressure on the European Central Bank."

He argued for "a global debate on the right balance in Europe between support for growth and a reduction of public spending."

-- French problem is competitiveness --


He said: "We are already doing a lot. I do not agree that Europe is going deeper in to a cycle of austerity and recession ... I do not want the euro to dive down into the gloomy wallowing of austerity policies."

Regarding the disagreement between France and Germany, the two main forces in the eurozone, on whether the level of the euro is a concern, Moscovici said: "We do not have necessarily either the same point of view or the same situation."

He said: "The essential problem for France is to be more competitive, it is to pull its industry back up, it is not just to save Petroplus (a bankrupt refinery) and to defend endangered companies but also to promote an industrial policy."

He estimated that if the euro continued to rise at the current rate, it could cut growth of the French economy by 0.3 percentage points over the whole of 2013.

However Commerzbank economist Lutz Karpowitz called the 15 percent gain in the euro since July "really nothing exceptional".

He said: Companies have got used to the current levels as well."

The background to the minister's remarks is criticism, notably from some developing countries, of injections of funds into economies by the central banks of the United States and Japan and to a lesser extent in the eurozone, to support the financial system through the recent crisis. They object that this will have the effect of pushing down the value of the currencies concerned, amounting to competitive devaluations.

Meanwhile the United States has long argued that China has held down the value of its currency artificially, thereby building up mountains of dollars and aggravating global imbalances, seen by many analysts as a central factor behind the financial crisis.

In the eurozone, there is a broad difference of view between countries in northern Europe which emphasise budget rigour and industrial efficiency to overcome the zone's debt crisis, and countries in the south which say this should be tempered by efforts to stimulate growth.

Analysts see signs that the European Central Bank is tending towards a cautious line on monetary policy to ensure that crisis measures do not stoke inflation, and that this is a factor pushing up the euro and worrying eurozone members struggling most to boost growth.

A foreign exchange policy for the euro would be a major innovation to the principles of the eurozone since it could potentially clash with the ECB's independence in managing the money supply and price stability.