November 8, 2010 / 4:40 PM / 10 years ago

UPDATE 1-U.S. QE2 decision not a good one-Eurogroup head

* Juncker says Fed decision is fighting debt with debt

* Juncker sees risks to emerging markets

* Juncker expects question to be raised at G20

(Adds more quotes, background)

By Jan Strupczewski

BRUSSELS, Nov 8 (Reuters) - The chairman of euro zone finance ministers Jean-Claude Juncker criticised on Monday the U.S. Federal Reserve’s bond purchase plans, noting they might not boost the U.S. economy but push capital into emerging economies.

“I don’t think it is a good decision,” Juncker told a European Parliament hearing.

Leaders of the world’s 20 biggest developed and developing economies, the G20, meet in Korea this week to discuss how to prevent a currency row escalating into a rush to protectionism that could imperil the global recovery. The Fed decision is likely to be discussed.

“I think that the Europeans who are sitting around the G20 table will obviously have to put questions to our American friends regarding recent monetary decisions, because they don’t seem to be in line with what was agreed at preparatory meetings for the G7 and the G20,” Juncker said.

Officials from Germany, Brazil, China and South Africa were among those expressing concern that the Fed’s money printing to buy $600 billion of government bonds could weaken the dollar, drive up commodity prices and send uncontrollable waves of investor cash into emerging markets.

Juncker said the bond purchases would not necessarily boost investment among U.S. companies or consumption among U.S. consumers.

“I think there’s a risk of passing on volumes of solvency to emerging countries which those countries cannot absorb,” Juncker said. “You’re fighting debt with more debt.”

But U.S. President Barack Obama defended the Fed policy on Monday during a trip to India, saying the Fed’s mandate to grow the U.S. economy was good for the world as a whole.

Juncker also said the dollar was too weak against the euro as a result of the policy, which he likened to the efforts of China to keep its yuan currency artificially weak, to give its exporters an advantage on global markets.

“There is great criticism of the Chinese policy, but in a different way they (the United States) are pursuing exactly the same policy,” Juncker said. “I see the risk of inflating the situation and making it more difficult to get out of the crisis.”

Juncker also dismissed the U.S. idea to set a limit of 4 percent of GDP on current account imbalances among the G20 to reduce global savings and trade imbalances — a move seen aimed squarely at China to force it to allow its yuan to appreciate.

“I don’t think we need to quantify surpluses in a punitive way. For example we cannot say that someone with a 4 percent surplus would be regarded as suspicious. We can’t do that,” Juncker said.

“You’ve got to look at the reasons which lead to these surplus countries. We’ve got to look at the causes,” he said. Europe’s biggest economy, Germany, had a current account surplus of 4.9 percent of GDP last year.

Reporting by Jan Strupczewski, editing by Rex Merrifield

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