France stakes future of EU on fate of euro currency

By Rob Taylor

CANBERRA (Reuters) - France on Sunday staked the future of the European Union on the fate of the euro, saying the economic and political union at the heart of Europe would be at risk if the single currency were allowed to be torn apart by the region's sovereign debt crisis.

French Foreign Minister Alain Juppe gave a frank assessment on Sunday of the consequences of a disintegration of the euro, telling reporters on a visit to Australia that EU mainstays France and Germany were both committed to preventing this.

"We certainly cannot allow the sole currency to fall apart because falling apart would apply also to Europe as a whole," Juppe said through his own interpreter in Canberra.

"The sole currency cannot really function unless there is economic power and European government as such around the euro zone."

France and Germany, Europe's economic powerhouse, are struggling to present a united front to shore up confidence in the 17-member euro zone, because of growing public unease over propping up weaker member states, especially Greece.

Stock markets tumbled on Friday on news of the resignation of a German executive board member from the European Central Bank. And on Saturday, a sister party of German Chancellor Angela Merkel's conservatives said heavily indebted states should be threatened with ejection from the euro zone.

France's Juppe said debt-laden Greece needed to meet its commitments to put its finances on a sustainable footing, in order to access the latest 109 billion euro ($150 billion) euro-zone bailout package unveiled in July.

"Greece has made some mistakes. They have to correct these mistakes. They also have to honor the commitments that they have made," he said.

Some economists believe Greece should exit the euro to give it more control over its crippled economy, but Juppe was adamant the euro should not be allowed to unravel.

"France and Germany are agreed as to this objective. The 17-member countries of the euro zone are also supportive. It is true that outside the euro zone some countries are not of the same view, but we will be able to push this through."

LOOKING FOR a STRONGER YUAN

Juppe also suggested a stronger yuan would help reflate the euro zone, and said he would raise the issue in Beijing where he is to stop en route back home to France.

"We believe that the yuan is undervalued at present. We will certainly discuss this with the Chinese," he said.

He added that the level of the yuan, in so far as it causes imbalances in the global economy, would also be a main topic for discussion at the G20 summit in France in November.

Beijing has allowed the yuan to gain about 6.9 percent since it scrapped a dollar peg in June 2010.

But the United States and the European Union want faster appreciation, with the U.S. administration facing a deadline on Friday to decide whether to formally label China as a currency manipulator.

Juppe appeared to link China's export-orientated economic model to the mountains of debt accumulated in Europe.

"We believe today that there is an issue appearing. It is not a European issue and it is not an American issue. It's a world-wide issue therefore we have to try and rebalance the economic situation worldwide," Juppe said.

"China has chosen a development model focused on exports which is really something that we could all learn from. In fact, it was advantageous to us because we were able to purchase consumer goods at very good prices, but we have not really thought the matter through in terms of the effect that it would have on our own competitiveness.

"We incurred rather a lot of debt and in particular we owe a lot of money to China, so really this system that we have in place is not long-term sustainable." ($1 = 0.729 Euros)

(Writing by Mark Bendeich, Editing by Jonathan Thatcher)

(This story corrects paragraph 14 to clarify Beijing scrapped the peg in 2010)