20.10.200906:49:00UTC+00Eurozone Policy Makers Worried About Forex Moves; Agree To Cut Budget Deficits

The European Central Bank President Jean-Claude Trichet and finance ministers of the sixteen Eurozone countries expressed "worries" on Monday about forex movements and voiced support for a strong U.S. dollar. They also reportedly agreed to cut budget deficits in 2011 if the European Commission's forecast, due in November, sees economic recovery in 2010 and 2011.

In a meeting held in Luxembourg, Eurogroup chief and Luxembourg Prime Minister Jean-Claude Juncker said he, Trichet and EU economic and monetary affairs commissioner Joaquin Almunia spent quite a long time discussing exchange rates. "It's a problem which has us worried."

Due to the loose monetary policy in the U.S., dollar weakened against currencies of the country's major trading partners, risking the recovery of export-dependent economies. As a strong euro makes Europe's exports expensive to sell in foreign markets, it challenges the region's export-led recovery.

The greenback tumbled to a 14-month low of 1.4967 against the euro by about 10:20 pm ET Monday. This may be compared to Monday's New York session closing value of 1.4966. The U.S. dollar has been in a downward channel against the euro since the beginning of this month and has depreciated around 3.4% after rising to a new multi-week high of 1.4483 on October 02.

Recently, U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke said a strong dollar was in U.S. interests. Trichet said the Europe, the Eurogroup and the ECB very much share that view expressed by the U.S. policymakers. French Economy Minister Christine Lagarde said, "We want and need a strong dollar."

Also at the meeting, the euro area policy makers agreed to make decisive efforts to reduce the rising public debt when they finally withdraw stimulus measures. Noting that now is not the right time to exit stimulus, Juncker said, policy makers have a common view that the exit strategy should start if the preconditions are completed in 2011. The preconditions include growth in Eurozone economies in the next two years independent of stimulus measures.

Juncker said, "We will be withdrawing fiscal stimulus in 2011" if a November 3 forecast from the European Commission confirms a solid recovery for this year and next. He added that policy makers would look at reducing budget deficits by more than 0.5% of gross domestic product every year, envisaged by the European Union's budget rules. Juncker noted that withdrawal of stimulus programs would be gradual.

Copyright(c) 2009 News.com, Inc. All Rights Reserved