Old EU Is Happy With Current RMB. For Now…

Sunday, November 29, 2009 19:49
Posted in category The Big Picture

Given it was less than 2 weeks ago that Obama, and his full team, were in China discussing the value of the RMB with senior officials, this morning’s WSJ headline China Talks With the EU About Yuan caught my eye.

Equally interesting is that while US exports have benefitted from the current situation, the EU has not.  That as the dollar has sunk, the Euro “peg” to the RMB has gone the wrong way for most of the EU making its goods and services more expensive.

European finance officials relayed to China’s premier and central-bank governor frustration over the Chinese currency’s rigid exchange rate at talks on Sunday, but said they didn’t expect a change in policy soon.

further

The yuan has emerged as the focus of wider frustrations roiling Europe’s relations with China. There are political concerns that the euro’s strength against the yuan is undermining economic recovery in the euro area, where unemployment remains stubbornly high, and that Beijing’s exchange-rate policies mean Europe isn’t benefiting fully from China’s surging growth.

Ahead of the Copenhagen climate-change summit next month, Europe is challenging China’s argument that as a developing country it isn’t able to cap its output of global greenhouse gases. “I certainly asked the Chinese and all our partners to explore the outer limits of their positions,” said European Commission President José Manuel Barroso. (All Roads comment – what does this have to do with currency discussions?)

The European Union Chamber of Commerce in China warned last week that China’s massive economic-stimulus program risked unleashing a new wave of industrial exports and sparking trade conflicts.

Looking at this from 35,000 feet, what should be clear to see is that while globalization bought everyone together, this recession is pulling regions apart in ways that I am sure few anticipated.  The US, for all its problems has benefited to some degree by the weak dollar (as any classically trained economist would have predicted), but that is little consolidation for the EU. Now split into 3 clear factions – one hoping for a RMB appreciation, one looking for a depreciation, and the other looking to hold steady, one can only imagine how this will play out in the backrooms of the COP15 discussions coming up next week.

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