France's Christine Lagarde position on the Euro

FEBRUARY 7, 2011
France's Lagarde Says Euro Is Victim
By WILLIAM HOROBIN
Source: Wall Street Journal
PARIS—French Finance Minister Christine Lagarde on Sunday said global foreign-exchange imbalances must be tackled, as the euro is the victim of a weak U.S. dollar and Chinese yuan.

"We must reform the international monetary system so that the euro is not caught in the middle, hit by the expense of trade-offs between two currencies that are deliberately weak," Ms. Lagarde said in an interview on television channel France 5.

France has set out an ambitious agenda of monetary changes for its presidency of the Group of 20 industrialized nations this year. It has long argued that the international monetary system relies too heavily on the U.S. dollar, leading fast-growing countries such as China to amass huge dollar-denominated currency reserves that feed foreign-exchange volatility and weigh on the global economy.

The French finance minister also urged more convergence of economies in the euro zone and said it is better to have rules on coordination than resort to emergency measures. Her comments follow a European summit Friday where a Franco-German plan for a European competitiveness pact was met with anger from other euro-zone countries.

"It's not sufficient to have the same currency, we need concordant, coherent policies that lead us to a more competitive Europe," Ms. Lagarde said.

She said that the current bailout fund, the European Financial Stability Facility, should be able to disburse its full €440 billion in order to give the euro zone firepower to stave off crises.

The EFSF consists of €440 billion of loan guarantees that can be used to raise funds for troubled euro-zone countries, but its funding capacity falls short of that amount, in part so that it can sustain a AAA credit rating.

Germany has been unwilling to put more money on the table for bailout facilities in the euro zone without concretecommitments from other countries on public finances and competitiveness.
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Ms. Lagarde echoed the Germany line that proved controversial last week. "Everyone has to play the game. It's the principle of conditionality: We help you, but you have to make efforts yourself too," Ms. Lagarde said.

Also, Lagarde confirmed France's 2011 gross domestic product growth target of 2%, after GDP growth of at least 1.5% in 2010.

The French economy is out of the toughest part of the crisis, she said.