Reuters | Aug 29, 2010 | 9:04am IST
The European Union thinks China has made only limited progress in allowing its yuan currency to move more rapidly, and swifter action would help safeguard a fragile economic recovery, according to a draft G20 document obtained by Reuters on Saturday. The document outlines EU positions ahead of a Group of 20 deputy finance leaders meeting in Kwangju, South Korea, Sept. 4-5. South Korea will host a G20 leaders’ summit in November. The 13-page document addresses issues including the economic outlook, governance of the International Monetary Fund, financial regulatory reform, and climate change. The draft was undated, and it was not clear whether EU officials had approved it.
The EU sounded somewhat upbeat on Europe’s economic prospects, but raised concerns about growing risks in the United States and Japan, the document shows. The draft also reflects some frustration with China’s slow progress in allowing its currency to appreciate. China announced in June that it would loosen its grip on the tightly managed yuan, which the United States and Europe say Beijing keeps artificially low to support exports. "A vigorous implementation of this policy is now necessary," the draft statement said. "Unfortunately, so far, only limited progress has been made." It said a stronger yuan would be in Beijing’s best interest because it would help prevent the Chinese economy from overheating and creating asset price bubbles.
The EU draft said the global economic recovery remained fragile and uneven across countries and "downside risks have increased in the U.S. and Japan." Since the last G20 summit in Toronto in June, the U.S. economy has shown signs of faltering while Europe’s growth has been stronger than expected. Global stock markets stumbled in August in part because of worries that the U.S. economy could slip back into recession, although Federal Reserve Chairman Ben Bernanke insisted on Friday that modest growth would continue through this year and the pace would likely pick up next year. In Japan, the yen’s leap to a 15-year high has raised concerns that its export-led recovery might fade. Japanese Finance Minister Yoshihiko Noda said on Saturday he was ready to employ "all possible measures" to shackle the yen, which tends to strengthen in times of global economic uncertainty. The EU draft said Europe’s economy was "performing somewhat better than expected" and praised recent stress tests of Europe’s largest banks for raising investor confidence in the health of the financial system.
Reprising a theme from the Toronto G20 summit, the document said the EU was following a "growth-friendly" path toward repairing debt-bloated government finances, and prodded the United States and Japan to pare their own deficits and debt once economic recovery is assured. That was a source of trans-Atlantic friction earlier this year when the White House chided Germany in particular for pulling back its fiscal support too swiftly. The United States warned that switching to austerity too soon might jeopardize the economic recovery. On IMF governance, another area of disagreement between the United States and Europe, the draft gives no indication that the EU is willing to give up seats on the IMF’s executive board in order to give greater voice to fast-growing emerging economies such as China. The draft showed the EU supports shifting slightly more than 5 percent of IMF quota shares to "underrepresented" emerging and developing economies, but wants to keep the size of the executive board unchanged.