PARIS (Dow Jones)--French Finance Minister Christine Lagarde on Thursday said the U.S. Federal Reserve's new round of quantitative easing will put upward pressure on the euro and highlights the need for global coordination of monetary policies.
"The euro bears the brunt of the move," Ms. Lagarde said in an interview, a day after the U.S. Fed embarked on a new plan to buy $600 billion of U.S. Treasurys to spur the country's slow economic growth.
"I am not making a judgment on the U.S. quantitative easing," she added. "But it shows the imperative need to rethink the international monetary system and cooperation mechanisms."
Ms. Lagarde's comments come as France gears up to use its upcoming role as president of the Group of 20 world economies to explore ways to curb foreign exchange volatility, which is seen as a growing threat to global economic growth. France takes the helm of the G-20 at the end of next week for one year.
Recent unilateral interventions by nations such as Japan, South Korea and Brazil to hold down the value of their currencies have fueled talk of a currency war. In the U.S. the Fed hopes that buying government bonds will help keep long-term interest rates low, boosting both consumer spending and investment by companies.Caught between the new round of U.S. monetary easing and China's inflexible currency regime, France and the 16 other countries that share the euro currency are in a delicate position, Ms. Lagarde said.
"The euro is clearly the variable of adjustment. On the one hand, the dollar is going down with a monetary policy designed to that effect; on the other hand, the Chinese yuan is not floating freely, which means another currency has to rise," she said.
Ms. Lagarde added that G-20 members must look beyond their national priorities to realize that cooperation on currencies would eventually be beneficial for all.
"There are no mandatory enforcement mechanisms," she said. "We must find ways to cooperate."
Obviously, it looks like China and the US have found a sucker, the Euro, to devalue against. Not all major currencies can successfully devalue against each other at the same time. It's impossible because you need a strong currency to compare your currency to; it's a relative thing. That is, you need to find a large economy to export your inflation and products into. Who remains? Enter the EU.Full article HERE.
And what of Lagarde's comment: "I am not making a judgment on the US quantitative easing"? Does Europe have a spine?!!!! China, Brazil, South Korea, etc... all openly complain about dollar debasement, and the EU leadership does nothing?!!! Look, what Ben Bernanke is doing is creating the world's largest carry trade. One that will make Japan's carry trade look meager by comparison. It is a dangerous policy of exported inflation and bubble creation around the world that will end in economic tragedy.
Europe needs a voice. Many of its member states are committing economic suicide by implementing austerity measures, while their currency, the Euro strengthens. How can the member states successfully export their way out of this mess? How can you pay back burdensome sovereign debt when your economy is experiencing debt deflation - the vaporization of money?
I think that the Deauville Meeting between Germany, France, and Russia may have covered this topic. See my post: The Franco-German-Russian summit in Deauville. If France and Germany don't have something up their sleeve to combat this, than they will be sorely disappointed if they think they can create "cooperation" in the upcoming G20 French Presidency. Europe's members may work like that, but the world, at large, does not.
The Euro could also be doomed because it does not have a central Treasury. Right now, any debt monetization done by the ECB is nation specific, meaning they don't buy EU debt, they buy Greek debt, or Irish debt, etc... so there isn't exactly one interest rate, but many. Here's an interesting view from the Business Insider: