“Key European nations are pressing the Bush administration for a more-aggressive verbal campaign to stabilize the sliding dollar,” writes Michael Phillips in today’s Wall Street Journal.

“Germany, France and Italy want the U.S. to sign on to a joint statement warning against excessive volatility in currency markets when finance ministers and central bankers from the Group of Seven major industrialized nations meet in Boca Raton, Fla., this weekend. Financial markets probably would see such new rhetoric as an effort to boost the flagging dollar, which the Europeans and Japanese say damps their economic growth.”

“U.S. Treasury Secretary John Snow and his economic team, who are averse to government tinkering in currency markets and grateful for the aid the weak dollar is giving U.S. manufacturers, have resisted European pressure. ‘It is clear that the U.S. authorities are more lukewarm about the issue,’ said a European official involved in the negotiations.”

“But U.S. officials don’t want a big fight when they host the G-7, and compromise wording may emerge yet. “The language of the communique will not be determined until the ministers meet in Boca Raton,” a U.S. Treasury official said during the weekend.”

“The dollar hit a three-year low against the yen last week and has tumbled more than 50% against the euro since its high during 2000. Many Asian currencies tend to move with the dollar; the Chinese, for instance, keep the yuan tied to the dollar. The result is that the dollar’s weakening has left the euro strong compared with the currencies of Europe’s major competitors — a bane for European companies that sell abroad or compete against U.S. and Asian imports.”

“At their final gathering before the G-7 meeting, finance ministers from the 12-nation euro zone and the president of the European Central Bank clearly signaled they think the euro has climbed too far. Since the common currency’s inception, Europe’s top finance officials have repeated their mantra favoring a ‘strong and stable euro.’ This time, they made no reference to ‘strong,’ and instead said that ‘in the present circumstances, we particularly stress stability and we are concerned about excessive exchange-rate moves.’ “

“Privately, Bush administration officials have welcomed the dollar’s decline, though they don’t want it to fall too far too fast for fear of spooking U.S. stock and bond markets. U.S. manufacturers have lobbied the administration to strong-arm China in particular to allow its currency to rise against the dollar.”

“When the G-7 economic officials met in Dubai during September, the ministers’ statement praised flexibility in exchange rates, a message aimed primarily at China, Japan and South Korea. The dollar weakened after that meeting, as traders interpreted the communique as a U.S. endorsement of a broadly weaker dollar.”

“U.S. officials are reluctant to alter that language, in part fearing it might provoke unforeseen results as each G-7 member interprets the new message its own way. The Europeans say the G-7 should signal clearly that the dollar should weaken no further against the euro and that Asian currencies should strengthen. Japanese officials, however, are likely to see a G-7 critique of ‘volatility’ as an endorsement of their longstanding practice of intervening in currency markets when the yen climbs against the dollar.”