French PM says euro overvalued, urges ECB asset purchases

PARIS, July 2 Wed Jul 2, 2014 5:10am EDT

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PARIS, July 2 (Reuters) - Prime Minister Manuel Valls renewed French calls for the European Central Bank to help bring down an "overvalued" euro, telling Les Echos daily in an interview he wanted a central bank that would purchase assets on markets.

Francois Hollande's government repeatedly complained about the strength of the euro ahead of EU parliamentary elections in May, calling both the ECB and governments to take action on the currency front to boost growth.

"The euro is overvalued, which is bad for our industry and for growth," Valls told Les Echos in an interview published on Wednesday.

He welcomed the Frankfurt-based central bank's decision in June to announce a raft of measures to counter the threat of deflation, including cutting the deposit rate below zero and offering more long-term loans aimed at boosting bank lending to businesses.

"It's a strong signal but my idea of a central bank is one that could go further, including by buying assets on the markets," he said. "Monetary policy cannot go only through interest rate moves."

France has a tradition of asking for EU and ECB action to weaken the euro, irking some of its partners and in particular Germany, which in May rebuffed previous calls by Valls for a "more appropriate" monetary policy.

ECB chief Mario Draghi has said large-scale asset purchases are part of the bank's toolkit, but that for now the bank would focus on its latest set of stimulus measures which will take until late this year to assess for impact.

While governing Council member Ewald Nowotny in mid-June described talk of quantitative easing as "phantom discussions", a Reuters poll of economists pointed to a one-in-three chance of the ECB launching an asset purchase programme within 12 months.

Economists polled by Reuters are unanimous in expecting no further change in rates at Thursday's monthly ECB meeting. (Reporting by Ingrid Melander; editing by Mark John)

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