- The Washington Times - Monday, June 6, 2005

LUXEMBOURG (AP) — European Union finance ministers opened a two-day meeting yesterday, determined to stand by their euro currency at a time of political turmoil over the French and Dutch rejections of the EU constitution and Britain’s decision to not put it to a vote.

The value of the common currency took a dive following “no” votes in referendums over the constitution in the Netherlands and France, and ministers in some euro-zone governments questioned whether the euro should be dropped.

The European Central Bank has been at pains to defend the currency, and EU diplomats said the finance ministers planned to echo the view of ECB President Jean-Claude Trichet, who has called it “absurd” to speculate about the euro’s demise.

Austrian Central Bank Governor Klaus Liebscher — who is also a member of the ECB Governing Council — stood up for the euro yesterday in an unusual advertisement in the Austrian newsweekly Profil. “A common market without a common currency would have remained just a torso. The euro itself has been effective,” the ad said.

Some Italian government ministers have publicly called for a return of Italy’s former currency, the lira, criticizing the ECB’s one-size-fits-all interest rate policy and blaming the euro currency for higher prices.

Luxembourg Premier Jean-Claude Juncker, whose country holds the EU presidency, and German Finance Minister Hans Eichel dismissed the idea of reviving currencies that were withdrawn from circulation in 2002, making room for the euro.

“What I read in the newspapers in the last 10 to 14 days [about the euro being in danger] was such nonsense,” Mr. Eichel said.

Mr. Juncker said the euro-zone finance ministers’ meeting, which he chaired, would not discuss “such stupidities,” adding that “we have no time to waste.”

Mr. Eichel reiterated that with the fate of the EU constitution in the balance, it was important that the leaders agree next week on a new EU funding deal in the 2007-13 period.

“Germany has signaled it is ready to move, but that does not change our basic view” that annual spending cannot exceed 1 percent of the EU’s gross national income, Mr. Eichel said.

Five others — Britain, France, the Netherlands, Sweden and Austria — agree with Germany, while Eastern European nations and Spain want a much higher spending cap.

Yesterday, the euro rose slightly against the dollar to $1.2287 in European trading but remained well below the $1.26 level it last reached on May 25.

The ministers’ agenda is packed with other issues, ranging from a proposed redesign of euro coins — to show a larger map of Europe since the bloc’s expansion last year — to a new European commitment to boost development spending for the world’s poorest nations.

The ministers also are to consider the outlook of the euro-zone economy, which is set to expand by only 1.4 percent of gross domestic product in 2005. A weaker euro could benefit the EU economy by boosting exports.

HSBC economist Gwyn Hacche estimates that a permanent 4-cent drop in the euro’s value against the dollar would be the same as an interest rate cut of a quarter to a half of a percentage point.

The euro zone has been hampered by weaker growth in exports — “mostly due to the stronger euro,” the economist told Dow Jones Newswires.

Also threatening the euro are high deficits. Eleven of the 25 EU governments have budget deficits exceeding 3 percent of GDP — the threshold the EU set for those that use the euro.

Some EU members argue that high deficits are necessary to compensate for low growth. Italian Prime Minister Silvio Berlusconi has promised billions in tax cuts and blames the EU for sticking to rigid budget rules.

The European Commission, meanwhile, is expected to issue figures today showing that Italy’s budget deficit will rise to 4 percent of GDP this year and 5 percent next year.

Also on the finance ministers’ agenda is France’s demand for lower value-added taxes on restaurant bills — something Germany and Denmark oppose — and a debate about the EU annual budget in the 2007-13 period.

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