European Union leaders called for the world’s top economies to stop arguing about exchange rates and let the markets do the work for them as they met on Friday for a summit in Brussels.
The leaders of the world’s 20 top economies (G20) are to meet in Seoul on November 11. Ahead of the summit, tensions have flared over the question of national exchange rate policies, with the U.S. and China, in particular, accusing one another of protectionism.
The EU summit “stresses the need to ... avoid engaging in exchange—rate moves aimed at gaining short—term competitive advantages,” a joint statement approved by all 27 EU leaders read.
Since the world plunged into economic meltdown in 2008, the G20, which groups all the major developed and developing powers, has emerged as the key forum for international economic cooperation. The Seoul summit is expected to push for sweeping economic reforms.
“The world economy is recovering from the crisis. However, there remain a number of issues that require sustained attention at the global level,” such as sovereign debt risks, high unemployment, volatile commodity prices and trade imbalances, the statement said.
However, the currency issue is likely to dominate talks, after the U.S. drafted legislation which would allow it to impose tariffs on states which “manipulate“ their exchange rates.
“The G20 should reaffirm its commitment to move towards more market oriented exchange rate systems that reflect underlying economic fundamentals and refrain from competitive devaluation of currencies,” the heads of the EU’s political and executive branches, Herman Van Rompuy and Jose Manuel Barroso, said in a joint letter.
G20 finance ministers tried to bridge their differences at a meeting on Saturday, but without any of the main players making breakthrough concessions.
Mr. Barroso and Mr. Van Rompuy are set to represent the EU jointly in Seoul, while the leaders of Germany, France, Britain and Italy are all due to represent their countries. That gives the EU a strong presence around the table.
However, other leaders at the summit warned that the bloc only had limited room for manoeuvre, since the chief clash over currency is between the U.S. and China.
“There’s a very special symbiotic relationship between the U.S. and Chinese economies, and in that context, Europe is not exactly unimportant, but it doesn’t have major influence on the process which is going on between the U.S. and China,” Swedish premier Fredrik Reinfeldt said.
At the same time, the yuan “is not sufficiently market valued,” he stressed.
Separately, the summit approved the EU’s stance for United Nations—led talks on climate change in Cancun, Mexico, in December.
The EU has so far failed to gain influence over the climate debate. Friday’s statement held out the veiled warning that the bloc could walk away from the only current international climate—change deal, the Kyoto Protocol, if other major greenhouse—gas emitters do not sign up to their own emissions cuts.
The EU “confirms (its) willingness to consider a second commitment period under the Kyoto Protocol provided (its) conditions are met,” the statement read.
The EU has already passed climate—change laws which are considerably more ambitious than Kyoto, meaning that a decision not to accept new Kyoto targets would have political, but not environmental, significance.
Leaders had also been meant to discuss forthcoming summits with the U.S., Russia and Ukraine, but diplomats said that those debates were shelved because debates on internal economic issues overran.