Finance ministers voice concerns about euro

By Tony Barber in Brussels

Published: March 4 2008 11:19 | Last updated: March 4 2008 11:19

European finance ministers on Tuesday made clear their growing concern about the euro’s strength against the dollar, but said they had not pressed for co-ordinated central bank intervention in foreign exchange markets.

Ministers from the 15 eurozone countries issued a statement on Monday night saying: “In current circumstances, we are concerned about exchange rate moves… We don’t think the recent moves are reflecting economic fundamentals.”

They were reacting to the euro’s rise on Monday to $1.5275, the highest level it has touched since its launch in 1999. The euro has risen by 16 per cent against the dollar in the past year and is also stronger than some eurozone governments prefer against the yen and Chinese renminbi.

Financial market commentators noted that the eurozone statement was similar in tone to that used before the European Central Bank intervened in support of the euro in September 2000.

On Monday ministers drew attention to the fact that Jean-Claude Trichet, the ECB president, had emphasised before going in to the talks that the US authorities had said it was in the US national interest to have a strong dollar.

This was interpreted in financial markets as a warning signal from Mr Trichet about the dollar’s most recent slide against the dollar.

But on Tuesday at least one finance minister, George Alogoskoufis of Greece, said there had been no discussion among his colleagues of joint currency market intervention by the ECB and the US Federal Reserve. “No, no, there was no discussion of that,” he said.

He added: “There is a slight increase in the attention we are giving to currency market developments, because the turbulence continues and this is not something we want. But it does not mean anything dramatic…This is a global problem, it is not a European problem. I don’t think there is anything we can do on our own.”

Jean-Claude Juncker, the chairman of the eurozone finance ministers’ group, also avoided commenting on possible central bank intervention, saying: “I don’t think it would be wise to offer targets to financial markets.”

Some eurozone countries, such as Germany and the Netherlands, contend there are certain advantages in the euro’s strength, in that it is helping to contain inflation, currently at a 14-year high. In addition, they see little impact on the eurozone’s export performance.

Although the European Commission last month cut its 2008 economic growth forecasts for the eurozone, José Manuel Barroso, the Commission president, said on Tuesday the outlook was by no means bleak.

“We face economic headwinds that a few years ago might have been strong enough to sink us. But today Europe is continuing to grow and create jobs. Our employment rate at 66 per cent is our highest ever, and our unemployment rate at 6.9 per cent is the lowest for 25 years,” he said.

Copyright The Financial Times Limited 2008

ISB on Top 20

FT Global MBA Rankings: ISB ranked 20th globally
http://rankings.ft.com/global-mba-rankings

OK agreed. This is not an opinion. Nor a commentary. But as an Indian (as much as an ISBian), I'm proud to know that Indian School of Business is ranked 20th in the latest FT Global MBA Rankings much ahead of the greats like Kellogg and UCLA.

This could probably be the best for new school. Just six years old, started in an emerging economy, it surely is a great achievement.

Wonder if the IIMs take part in these rankings, a few deserve to be among the Top.

Vj

Beijing defends sovereign funds

Today of course the objective of Beijing to deploy SWF is purely economic - investment in China and acquire strategic resources outside China for the purpose of China. (and at the same time earn better returns on the $1500bn of reserves. But the worry of others (not just west), and a justified concern, is that few years down the line nothing stops Beijing in using these funds for political arm twisting and or even may be destabilising a country's markets. If Beijing wants to earn credibility (which it better do given the size of its reserves), it needs to bring in more transparency, hand over management of small funds to professional fund houses. Beijing and the petro dollar funds need to follow the route of Temasek (which is more professionally managed and transparent).

By Mure Dickie in Beijing

Published: January 7 2008 19:41 | Last updated: January 7 2008 19:41

The developed world should not discriminate against sovereign wealth funds from developing countries or subject them to “financial protectionism”, according to a senior Chinese official.

Comments by Wei Benhua, deputy head of China’s State Administration of Foreign Exchange, reflect Beijing’s concern about international reaction to China’s attemptsto generate better returns from its bulging foreign exchange reserves.

Critics have suggested the rise of sovereign wealth funds such as Beijing’s $200bn China Investment Corp (CIC) may give their opaque state masters unprecedented influence over other countries’ commercial assets.

But writing in China Business News yesterday, Mr Wei characterised such worries as baseless: “The China Investment Corp drew the attention of international society as soon as it was established, with certain countries intentionally disseminating the view of Chinese investment as a threat,” he wrote.

Sovereign wealth funds would benefit international markets by increasing liquidity and by making global resource allocation more efficient, Mr Wei said.

“There should be no discrimination in the treatment of sovereign wealth funds; the funds of developing and developed countries should be treated the same way. International society should clearly oppose investment protectionism and financial protectionism in any form.” China should get “actively involved” in discussions about rules, Mr Wei wrote.The International Monetary Fund is to devise a code for sovereign funds. The Organisation for Economic Co-operation and Development is at work on guidelines for investment recipients.

The comments by a top official at Safe suggest the foreign exchange regulator is determined to play a wider role in China’s push to boost returns from its nearly $1,500bn in forex reserves, despite formation of the independent CIC.

Mr Wei did not refer to Safe’s own low-profile international equity investment. The FT reported last week a secretive Hong Kong-based subsidiary of the administration had bought stakes in three of Australia’s largest banks.

Mr Wei wrote sovereign funds should “maintain a high level of information disclosure, and strengthen transparency”, although he added that risk of market instability would limit disclosure by new funds.

Political worries sank a 2005 bid by CNOOC, China’s third-ranked oil group, for American company Unocal. Recently there was concernat Chinese involvement in a takeover of 3Com, a US telecommunications company, by a consortium led by Bain Capital, the US private equity group.

Michael Pettis, professor of finance at Peking University’s Guanghua School of Management, said some observers seemed “overly worried” about influence of sovereign funds such as CIC, with its initial capital of $200bn of which only $70bn is for overseas purchases. “They are not really that big,” he said.

Copyright The Financial Times Limited 2008