12 - Relations with China on currency exchange rate

The EU is united on the need for a revaluation of the yuan but does not have a joint strategy. The gap between Europe’s economic weight and its limited influence remains stunning.

Europe has joined others and above all the US in asking for a revaluation of the renminbi. It wants to see China move towards a flexible exchange rate and eventually to full convertibility. The message may be weakened, however, by other priorities: Germany and northern European countries prefer to focus on investment issues; peripheral countries seek investment; and France is promoting a wider reform of the international system at the G20.

EU Trade Commissioner Karel De Gucht and European Commission President José Manuel Barroso brought up the issue of revaluation in the spring. In particular, De Gucht criticised China's “deliberate” policy of keeping its currency undervalued, and warned that this posed a “major problem” for global economic recovery. Over the summer, however, the issue receded in Europe as the euro rose again and China’s trade surplus with Europe decreased somewhat. On the eve of the EU-China Summit, the euro group in fact lauded China’s cooperation on international financial and monetary issues, while the US Treasury pressed ahead on the currency issue (although this did not stop Premier Wen Jiabao from lecturing Europe). Meanwhile, as it prepared to chair the G8 and G20, France also reached out to China with wider policy initiatives such as cooperation over IMF reform and Special Drawing Rights.

Europe’s influence is weak, because competences remain split and because of the gap between eurozone members and the others. The UK, for example, shows “understanding” for the European position but notes its separate status. China can also count on splits between several European leaders and the US on the Federal Reserve’s monetary policy. In 2010, China’s “bond diplomacy” towards eurozone countries with debt problems such as Spain, Greece and Portugal made it even harder for the EU to develop a more coherent response on the currency issue.