–First Ran On Mainwire At 1254 GMT/0854 EDT
–Corrects 12th Paragraph; EU Thinks Yuan Undervalued, Not Overvalued

By Emma Charlton

BRUSSELS (MNI) – Europe’s plea for China to let its currency
appreciate has been heard but is unlikely to result in direct action
after a series of meetings here ended in a stalemate, EU diplomats said.

Chinese officials, including Premier Wen Jiabao, met European
Central Bank President Jean-Claude Trichet, European Commissioner for
Economic Affairs Olli Rehn and Eurogroup Chief Jean-Claude Juncker late
Monday and early Tuesday for a series of economic talks that included
exchange rates.

“We noted that the evolution in terms of the effective exchange
rate is not exactly what we would have hoped ourselves,” Trichet said,
calling on the Chinese officials to do more.

Privately, EU officials say the meetings ended with no agreement,
as Europe’s three economic big guns failed to wrest any further
assurances from the Chinese delegation.

“We have had a good, constructive meeting but in terms of result…
I am not sure,” one EU diplomat said.

European policymakers, like their U.S. counterparts, have accused
China for years of keeping the yuan artificially low to boost exports.
They say China’s exchange rate policy distorts the global economic
balance and means that the euro’s level compared to other floating
currencies doesn’t reflect macroeconomic fundamentals.

While Europe openly calls for China to let its currency rise in
value, China’s policymakers so far have declined to venture any further
than a commitment they made in June to greater currency flexibility.
Instead, they point to their support for the Eurozone economy and euro
stability through their purchases of EMU sovereign debt.

One European official said that Wen had expressed displeasure that
Europe’s policymakers were calling so publicly for renminbi
appreciation, and that he stressed how his country was supporting the
Eurozone by buying euro area sovereign bonds.

“He pointed out that China has bought sovereign debt not only in
Greece, but also Iceland, Spain and Portugal,” the official said.

But Wen wouldn’t be drawn into further currency commitments,
reiterating the country’s June 19 statement, which said it would
“proceed further with reform of the renminbi exchange rate regime and to
enhance the RMB exchange rate flexibility.”

Juncker said the EU’s plea didn’t surprise Chinese officials, and
he conceded that “the Chinese authorities do not share our view.”

China’s steadfast position has left the EU delegation smarting,
because they feel the renminbi is “totally undervalued” and had been
hoping for assurances of some concrete action from their Chinese
counterparts.

“We’re not calling on them to up the pace [of appreciation]; we’re
calling on them to do anything at all to act on their committment,” the
first EU diplomat said, noting that since China made its announcement of
intent on the exchange rate in June, the euro has appreciated more
against the yuan.

But with the Chinese refusing to budge, Europe has its back to the
wall and is running out of fire power.

“We clearly have communicated, as the Prime Minister [Juncker] and
Olli Rehn said, that it was very important for us that the commitment
made on the 19th of June be confirmed, which, as far as I understand,
has been the case,” Trichet told reporters at a press conference.

What Trichet and other officials can’t do is force the Chinese
government’s hand.

The Chinese Premier didn’t attend the press conference following
his meeting with Trichet and he has made limited comments on foreign
exchange during his visit here, saying only that policymakers should
“keep the exchange rates of major reserve currencies relatively stable.”

Wen knows the balance of global economic power is shifting, with
Asian economies likely to be one of the key drivers of the world’s
recovery.

And he’s looking for recognition of that fact.

“We need to improve the decision-making process and mechanisms of
the international financial institutions; increase the representation
and voice of developing countries; encourage wider participation,” he
told leaders at the opening of the Asia-EU summit in Brussels on Monday.

Trichet said, “we have appreciated the intention and the
declaration of the [Chinese] Prime Minister, in particular on his
confidence in the treasuries of some countries in Europe.”

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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