The French President has said the euro currency zone must develop an exchange rate policy to protect the currency from "irrational movements".

"Europe is leaving the euro vulnerable to irrational movements in one direction or the other,"  Francois Hollande said in his first speech as president to the European Parliament in Strasbourg.

"A monetary zone must have an exchange rate policy or else it ends up subjected to an exchange rate that does not match the true state of its economy,' he added.

The French President also warned of a tough European Union summit later this week if countries including Britain continue to demand drastic cuts to the EU budget while refusing to make concessions themselves.

Francois Hollande said the 2014-2020 EU budget of some €1 trillion was open to some savings but insisted the leaders at Thursday's summit should not compromise innovation and development.

In several remarks that could easily be seen targeting British Prime Minister David Cameron, the biggest proponent of drastic savings in the EU budget while insisting to hold on to existing concession, Hollande said `'there are those who want to see cuts, others - possibly the same, who want guarantees on their own rebate."