May 14, 2014 / 1:07 PM / 4 years ago

UPDATE 2-EU candidate Juncker says could propose euro forex guidelines

(Adds Reuters poll in paragraph 9)

By Paul Taylor

PARIS, May 14 (Reuters) - The centre-right candidate to head the European Commission said on Wednesday he would not hesitate to propose foreign exchange policy guidelines binding on the European Central Bank if the euro were to become too strong.

Former Luxembourg Prime Minister Jean-Claude Juncker, who heads the European People’s Party campaign in this month’s European Parliament elections, told reporters he did not disagree with those, notably in France, who contend that the 17-nation single currency is too strong.

“If I were president of the Commission and if the strong euro were to become too strong, I would not fail to propose general guidelines on the exchange rate to finance ministers of the euro zone for their consideration,” Juncker told the Euro-American Press Association in Paris.

Recent opinion polls suggest Juncker’s EPP will emerge as the largest group in the European Union legislature, with a narrow lead over the centre-left Socialists but no overall majority, after the May 22-25 election in the 28 member states.

Juncker noted that the Lisbon Treaty which governs the EU allowed finance ministers to set “general orientations for exchange-rate policy” based on a recommendation by the executive European Commission or the central bank itself. Article 219 of the treaty stipulates that such guidelines must not prejudice the ECB’s primary objective to maintain price stability.

However, since the euro was introduced in 1999, the EU has always allowed it to float freely on foreign exchange markets and the ECB has repeatedly said it has no exchange rate target.

In its 15-year history, the single currency launched at an exchange rate of $1.1795 has traded as low as $0.8225 in 2000 and as high as $1.6037 in 2008.

The euro was trading at just over $1.37 at 1230 GMT on Wednesday after coming close in recent weeks to the $1.40 level described privately by some EU officials as the “pain threshold” for the euro zone economy.

Economists polled by Reuters said last week that the euro would need to reach $1.42 before the ECB would take action to weaken it, although the vast majority of them did not think it would reach that level.


Juncker, the veteran former chairman of the Eurogroup of euro zone finance ministers, said the ECB would have to follow any general orientations set by ministers.

“Is the euro exchange rate strong? Yes,” he said, noting that ECB President Mario Draghi had himself said in recent weeks that the strong euro was a cause for “serious concern” because it was depressing prices in the euro area.

Five ECB sources have told Reuters that the central bank is preparing a package of options for a June 5 decision, including a cut in all its main interest rates with a negative deposit rate, aimed at weakening the exchange rate and lifting inflation out of what Draghi has called a “danger zone” below 1 percent.

However, Juncker said France was mistaken in blaming its economic woes on an overvalued currency, since other euro zone countries subject to the same exchange rate such as Germany and Italy managed to achieve large trade surpluses.

“I would not say that those who say the euro is too strong are wrong,” he said. “I would draw your attention to the simple fact that the same exchange rate applies to all sub-economies of the euro zone.”

In a swipe at France’s Socialist government, which has repeatedly called for ECB action to weaken the euro against the dollar, he said: ”One shouldn’t always look for excuses or responsibility outside the frontiers of national territory.

“Sometimes, economic performance can be improved by applying the same reforms that others have already implemented.” (Writing by Paul Taylor; Editing by Hugh Lawson)

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