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UPDATE: EU: Rising Yuan Good For China, No Default In Europe

(Updates with additional comments from European officials)

By Joy C. Shaw and James Areddy

Of DOW JONES NEWSWIRES

NANJING, China (Dow Jones)--Top European monetary officials said Sunday they told China a gradually strengthening yuan is good for its economy and that they see no debt problems in Europe similar to the problems that have developed in Dubai.

Officials from the Eurogroup met with high-ranking Chinese officials, including Chinese Premier Wen Jiabao and People's Bank of China Governor Zhou Xiaochuan in the eastern Chinese city of Nanjing, discussing a range of macroeconomic issues with a focus on China's exchange rate regime and a global coordination of an exit strategy from stimulative measures currently in place.

Jean-Claude Juncker, the president of the Eurogroup, said in a press conference following the meetings that the Eurogroup representatives had a "frank" discussion on the yuan with their Chinese counterparts.

"An orderly and gradual appreciation of the [yuan] will be in the best interest of China and its economy," Juncker said.

China abandoned the fixed exchange rate between the U.S. dollar and the yuan in July 2005, using instead a basket of currencies. The yuan appreciated steadily against the dollar between 2006 and early 2008, but since September 2008 has been trapped in a tight band of CNY6.8200-CNY6.8400.

The dollar's weakness against other currencies has resulted in a significant depreciation of the yuan against the euro in recent months, drawing increasing complaints from European business groups. The E.U. argued that the fact the euro appreciated around 20% against the yuan in recent years has contributed to a wide trade deficit between the E.U. and China.

But he and Jean-Claude Trichet, European Central Bank president, said they don't expect China will make an abrupt policy change to allow a substantial rise in the yuan in the near term.

"I can't say I'm more optimistic than before," Juncker said.

Trichet said China confirmed with the Eurogroup officials Sunday that it will continue with its currency reform.

"But I won't interpret that as immediate changes from China's authority," he said.

Meanwhile, the European official said Dubai's debt woes aren't expected to spread to Europe.

"I don't see any default problem in Europe," said Juncker, in response to a question at the press conference. Trichet said he concurred, without elaborating.

Juncker also said the world's economic policy makers should not exit from stimulative policies yet.

"The moment has not arrived yet to exit from fiscal packages in all parts of the world," Juncker said. He said the economic recovery in Europe is still fragile and he doesn't expect major changes in the 27-nation European Union's fiscal policies in 2010.

But he added if the recovery becomes more solid in 2011, the E.U. may start to unwind its stimulative fiscal measures.

European Commissioner for Economic and Monetary Affairs Joaquin Almunia said considering the better economic performance in China than the rest of the world, the country should be ahead of other countries in exiting from stimulative measures.

Almunia said allowing the yuan to appreciate should be part of China's exit strategy.

"Exchange rate issues should be considered in this picture," he said.

-By Joy C. Shaw, Dow Jones Newswires; (86-21) 6120-1200; joy.shaw@dowjones.com

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(END) Dow Jones Newswires

November 29, 2009 05:50 ET (10:50 GMT)


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