Ten days ago still, the German Finance Minister Peer Steinbrück stood in strong opposition to several of his Eurozone partners: during a meeting of the Eurogroup, some countries had raised strong concerns over the appreciation of the Euro, backed by their industry. The German government took a relaxed position on this matter, arguing both that the German industry had no export problems due to their succesful efforts to improve productivity, and that the strong Euro also had economic advantages, notably due to the low prices this brought about for imports, e.g. energy.
Steinbrück recently declared he “loved” the strong Euro. Signals are there that this affective relationship may change in not too long a time, with the Euro breaking a new record high against the US-Dollar.
Competitive as it may be, the German industry federation yesterday joined their European, French and Italian counterparts in a letter to Jean-Claude Juncker, Eurogroup President, and their respective national finance ministers.
Just before the G7 summit, they urged them to engage for an orderly adjustment of exchange rates and current account balances, stating their concern over rapid exchange rate movements the world has recently witnessed.
This statement will make it increasingly difficult for the government of the largest state and national economy in the Eurozone, Germany, to try to hush any debate on exchange rate policy for the Eurozone or global macro-economic cooperation. In the German press, there was not or hardly any reaction to the joint industry federation statement. Quite differently though in Italy, where the economic daily Il sole 24 ore, Corriere della sera and other papers discussed the matter in today’s editions. If the euro persists at its current level (or rises further what is more likely) the debate will intensify in Germany, too.
This is good news as important time has already been lost. Rather than engaging in this debate seriously and confidentially, the public disputes of the EMU-13 countries on this matter (e.g. in the context of the latest Eurogroup meeting) show that some Finance Ministers seem to grant more importance to their own public statements, than they do to raising confidence in the markets that they know what they are doing.
The industry is right not only to state their vested interests: More importantly: their European statement shows that they share an analysis of the problems and risks inherent in the current situation, and that they have the legitimate interest that the Eurozone governance acts together and in one sense. The G7 meeting today is the right occassion for the political leaders to show that thew have also understood the challenge they are facing.
This post is co-posted on Eurozone Watch.