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WRAPUP 1-France, China worry about U.S. dollar weakness

Published 10/20/2009, 09:31 AM
Updated 10/20/2009, 09:36 AM

(Adds details throughout)

* French advisor says euro at $1.50 a disaster

* Chinese central bank worried about inflation

* Spain says no need for concern

By Emmanuel Jarry

PARIS, Oct 20 (Reuters) - France said the euro at $1.50 was a disaster for Europe on Tuesday and joined China in worrying that the weak U.S. currency would stoke inflation.

The latest comments from officials and companies around the world added to the debate about imbalances between currencies that is likely to continue at meeting of G20 finance ministers and central bankers in Scotland in November.

France has been pushing for an international exchange rate discussion and has led European complaints about the euro, which on Tuesday traded just shy of $1.50, a level not seen since August 2008.

"A euro at $1.50 is a disaster for European industry and the economy," Henri Guaino, President Nicolas Sarkozy's speech writer and one of his inner circle of advisers, told reporters on the sidelines of a conference of Sarkozy's ruling UMP party.

He said at some point the euro's strength against the U.S. currency would become unbearable and Europe would have to react, most likely by printing euros that would also lead to inflation.

France was disappointed that leaders of the G20 leading developed and developing nations, who met in Pittsburgh in September, discussed world economic imbalances without touching on currencies.

There are also growing signs that China is concerned about the domestic implications of its yuan currency peg.

"In the circumstances of a falling U.S. dollar exchange rate, net capital inflows may intensify, adding to excessive liquidity pressure at home and increasing inflation risks," Ma Delun, a vice-governor with the People's Bank of China said on Tuesday.

Earlier this month, the G7, which excludes China, singled out the yuan, urging authorities to let it strengthen.

U.S. officials have said they want a strong dollar but Guaino accused the United States of having a policy aimed at inflating away the public debt.

Guaino said the United States was "flooding the world with liquidity" and said eventually Europe would be forced to react.

"When the Americans create dollars and the dollar falls, there is a point at which you cannot take it any more," he said.

"What do you do? Either you create liquidity to bring the euro down, or you let the euro rise, rise, rise and then you are completely suffocated."

COMPANIES SUFFERING

The single currency has strengthened around 7 percent against the U.S. dollar since the beginning of this year.

Earlier this month, the chief operating officer of European planemaker Airbus, Fabrice Bregier, said the euro's strength is becoming "very difficult for all industrial companies which have their costs in euros".

The level of the U.S. dollar is also a problem for companies trading outside 16-nation euro zone.

Swiss-based biotech company Actelion, which generates nearly half its sales in the United States, said its third-quarter profit was flat at 108 million francs, hurt in part by the weak dollar.

Within the euro zone, the impact of the dollar's weakness is a subject for debate although there is no general agreement over how big a problem it might be.

Finnish Finance Minister Jyrki Katainen told Reuters on Tuesday the strong euro was a problem but others are less concerned.

Spanish Treasury Secretary Carlos Ocana said the euro was trading at normal levels while the German exporters' association, BGA, said that trade prospects would brighten in the coming months despite expecting a further rise in the euro.

European Central Bank President Jean-Claude Trichet on Monday stuck to his line that excessive volatility in currency markets was bad for the economy and repeated his attachment to comments from U.S. officials supporting a strong dollar. (Additional reporting by Jamie McGeever) (Writing by Anna Willard; Editing by Andy Bruce)

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