Hollande Urges Euro Rate Target, Sparring With Germany, ECB

Bloomberg: French President Francois Hollande called for government leaders to steer the euro’s exchange rate, becoming the most powerful European official to warn that the rising currency may deepen the recession.

Hollande broke with Germany’s hands-off policy on exchange rates and set up a potential clash with the European Central Bank by saying the euro area has to use the currency as an export-promoting tool just like the U.S. and China.

“We can’t let the euro fluctuate according to the mood of the market,” Hollande told reporters at the European Parliament in Strasbourg, France, today. “We have to act at the international level to assert our interests.”

The euro bought $1.3533 at 2:15 p.m., close to the 14-month high of $1.3711 reached on Feb. 1 amid confidence that the debt crisis is coming to an end. The 17-nation currency region slipped into recession last year and unemployment was 11.7 percent in December, the highest since the currency’s debut in 1999.

“We have to determine for the medium term an exchange-rate level that appears most realistic, that is most in line with the state of our real economies,” Hollande said.

The euro’s founding treaty gives governments the power to set “general orientations” on exchange rates, as long as this doesn’t interfere with the Frankfurt-based central bank’s control of inflation.

In 1997, the governments pledged to use this power only “in exceptional circumstances” and have yet to publicly invoke it. Hollande didn’t say how the governments would enforce an exchange-rate target and said politicians don’t have the authority to tell the independent ECB what to do.

Hollande said that as European countries set about strengthening their respective competitiveness, it is only logical to seek to boost the euro zone’s overall competitiveness against the outside world.

Europe’s crisis-management policy is “asking countries to improve internal competitiveness while external competitiveness deteriorates due to pressure from the exchange rate,” he said.

reporters on this story: Jonathan Stearns in Strasbourg, France