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EU Worried About Rising Euro, Sinking Dollar


European Union finance ministers are calling for the United States to shore up the sagging dollar by bringing its trade and budget deficits under control. The ministers are worried that, if the European single currency continues to gain against the dollar, the bloc's nascent economic recovery will be thwarted.

The euro, which is shared by 12 EU nations, has risen nearly seven percent against the dollar in the past two months amid signs that the Bush administration is prepared to tolerate prolonged weakness in the U.S. currency. On Tuesday, the euro was hovering between $1.29 and $1.30 on exchange markets, nearing last week's record low.

A strengthening euro is bad news for European exporters. In Germany, where consumer spending is moribund, exports supply what little growth the country has registered.

The Europeans blame the dollar's slide on a swelling U.S. budget deficit, caused in part by increased spending on the war in Iraq and the war on terror, as well as tax cuts implemented by the Bush administration. They also cite Washington's huge trade deficit as a reason for the dollar's decline.

Some European economists also say that the reluctance of Asian countries to let their currencies rise in value against the dollar means that the euro will continue to absorb the bulk of the pressure from a weakened U.S. currency.

Dutch Finance Minister Gerrit Zalm, whose country holds the EU rotating presidency, told reporters that the euro's record-breaking appreciation against the dollar is starting to undermine the bloc's already struggling economy.

"As far as the exchange rate is concerned, ministers agreed that excess volatility and disorderly movements in exchange rates are undesirable for economic growth and, in this context, the recent sharp moves of exchange rates are unwelcome," he said.

But EU officials say there are no signs that Washington is listening to European pleas.

Treasury Secretary John Snow, who is visiting Europe, says the United States supports a strong dollar, but that it is up to financial markets to set exchange rates. And even though he acknowledged that the U.S. budget deficit is too big, many analysts say that further weakening of the dollar is one way for Washington to boost U.S. exports, spur economic growth at home, and help reduce America's trade deficit.

Some German economists see a silver lining in the euro's rise. They say a strong euro raises European purchasing power and could help spur lackluster consumer spending. Under that scenario, a country like Germany could switch from relying on export-led growth to domestic-led growth. But they also warn that, if the euro rises to $1.40, that could dampen economic activity across the continent.