| Updated at: 0831 PST, Wednesday, October 06, 2010|
BRUSSELS: Fears of a global currency war land centre-stage Wednesday as Europe and China warm up for crunch IMF talks with a head-to-head summit focused on the yuan which the West says is "undervalued."
The issue already overshadowed a meeting of 46 European and Asian leaders in Brussels on Monday and Tuesday, but now the European Union finally locks horns with Beijing over its role in shaping the value of China's currency.
"Orderly, significant and broad-based appreciation of the renminbi (yuan) would promote more balanced growth," said leading eurozone finance minister Jean-Claude Juncker after talks with Chinese premier Wen Jiabao on Tuesday, stressing that the yuan remains "undervalued."
The currency issue was deliberately kicked into Wednesday's tighter agenda as Europe -- like the United States -- seeks to pressure China into relaxing policies deemed protectionist and responsible for skewing global economic recovery, without upsetting the world's post-recession economic superpower.
The commercial weight offered by a barrier-free market of half a billion relatively rich consumers gives Europe some clout, even if debt burdens in Greece or Ireland weaken its position in negotiations.
Brussels may be helped by the symbolic signature also on Wednesday of a deal to drop barriers to South Korea's auto and other exports -- in a deal sold to Asia as the first in a new generation of trade freeways.
Either way, bound up with headaches including how to re-configure the International Monetary Fund, or joined-up policy-making through the Group of 20 leading modern economies, these talks could prove pivotal for relations between the traditional and emerging proprietors of global might.
"On the global scale, externally, we need to focus our efforts on the reform of International Monetary Fund and financial regulation," said EU president Herman Van Rompuy late on Tuesday.
"After two years of profound (economic) crisis the main road has been found, but a lot of critical points still need to be tackled," the Belgian figurehead underlined.
A bid to ensure a level playing-field in financial market regulation "remains our number one priority," he stressed.
The sticking point, with recovery so dependent on who can sell the most to those who have to buy, remains a currency market as reliable as Wild West property speculation.
The euro hit fresh eight-month highs on Tuesday, well above 1.38 dollars, undercutting export competitiveness and ensuring tough talking when the annual IMF assembly begins formally in Washington on Friday.
French President Nicolas Sarkozy, who takes the G20 chair next month, set the tone, calling for a new world monetary order to keep at bay a beggar-thy-neighbour race to the abyss, reminiscent of the 1930s Great Depression.
"Everyone does as they want, everyone, each to their own, tries to preserve their own sovereignty (and) we are living in the 21st century without a monetary order," he said.
Brussels is doing its best, as the free-trade pact with Seoul shows -- it is only being signed after partners persuaded Italy to ditch objections over fears for its iconic auto industry.
But faced with decade-long deadlock in world trade negotiations, Europe and the United States must pursue bilateral avenues.
Brussels is also negotiating a pact with India, while another deal is in the works with Mercosur, a South American trade bloc that includes Brazil and Argentina.
The EU has also kicked off talks with Malaysia, but it is how it handles China that may define the pace of its recovery -- and its positioning in Sarkozy's fabled new order.
More than two years after the collapse of Lehman Brothers, the IMF says the financial system is still the "Achilles' heel" of recovery.
The richest regions -- Europe, Japan and the United States -- have the most to lose, a report out Tuesday concluded, while emerging markets remain "very resilient."
The battle has only just begun.