BRUSSELS, Nov 25 (Reuters) - Leading euro zone officials expect no immediate results from talks in China this weekend to push for an appreciation of the yuan, euro zone sources said.
We are reasonable enough to understand that two months is not feasible, and we are determined enough to convey the message that two years is too long, one of the sources said of European views on when the yuan should be allowed to rise.
We will try to meet somewhere in between, we will try to find out where their readiness to move lies, the source said.
European Central Bank President Jean-Claude Trichet, the chairman of euro zone finance ministers Jean-Claude Juncker and Economic and Monetary Affairs Commissioner Joaquin Almunia will hold talks with top Chinese officials, including Prime Minister Wen Jiabao on Sunday, Nov. 29 in Nanjing.
At the top of the agenda is the thorny issue of the exchange rate of the yuan, which is pegged to the U.S. dollar and held artificially weak despite China's huge trade surplus.
The Europeans believe a stronger yuan would help China rebalance its growth increasing the role of domestic demand, as well as help solve global trade and savings imbalances.
The euro zone trio will follow in the footsteps of U.S. President Barack Obama, who visited China last week but made no visible progress in persuading Beijing towards a stronger yuan.
The Americans are saying again, after a 6-month silence that the yuan has to go up, or decouple from the dollar, said a second euro zone source, who like the first is an official involved in preparing meetings for the Eurogroup of euro zone finance ministers.
Everybody is in agreement, also the International Monetary Fund and some important people on the Chinese side have said 'yes', which leaves the question -- what? when? and how?
China regards a firmer currency as part of the strategy for eventually withdrawing policy stimulus, but financial diplomats told Reuters in Beijing it had no appetite now for a stronger yuan, which has been re-pegged to the dollar since mid-2008.
The end of the second quarter of 2010 might provide a window for China to exit from its ultra-loose policies, according to a researcher with a Chinese state planning agency.
We know it is not easy to change, in a short period of time, the way the yuan is managed, Almunia said last week. We agree with the Chinese authorities about the direction of changes needed.
But with exports still 14 percent lower than a year earlier and no inflation to speak of, a stronger yuan was unlikely now, one diplomat told Reuters in Beijing.
I am quite sure the trio will not leave Nanjing with a date (of when the yuan appreciation could happen), the second euro zone source said. This is more about creating a convergence of understanding. If that happens, that would be considered a success by the euro zone.
The three euro officials made a similar trip to China in late 2007. Shortly afterwards the yuan was allowed to appreciate.
But a follow-up meeting planned for 2008 was cancelled by Beijing to protest plans by French President Nicolas Sarkozy to meet the Dalai Lama.
The euro zone sees the talks on Nov. 29 as a way to establish its own economic dialogue with China, its third biggest trading partner after Britain and the United States.
There is no forum in which the euro area can talk to the Chinese because China is not in the G7 and the euro area is not in the G20, the first euro zone source said, referring to the fact that the Eurogroup chairman is not invited to G20 meetings.
We need to find a way to discuss macroeconomic issues, including exchange rates, so this is the way we are proposing to discuss these matters. It's more to engage in a discussion, it's a start of a process into which we will try to get greater regularity, the source said.
The United States, Japan, Britain, Canada, Germany, France and Italy make up the Group of Seven, while the Group of 20 includes China and other major emerging economies.
Keeping expectations low, the euro zone considers the very fact that the trip could be organised at short notice a success.
The trip is the message, the first source said. It is important from the European perspective that we are going to China, making our point to the highest political authorities including the prime minister. It shows they care about this.
(Reporting by Jan Strupczewski; Editing by Ruth Pitchford)
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