Thursday, July 12, 2007
Does a strong Euro mean a strong Europe?
Sadly, no.
Americans ... will enjoy the benefits of a super-cheap currency, which will more than offset falling property prices and problems with a small minority of mortgage loans. American politicians, for all their faults, instinctively understand this, which is why they have generally welcomed a falling dollar and have been pressuring China and Japan to let the dollar weaken against the yen and the renmimbi – not just, as at present, against the euro and the pound.
European policymakers, by contrast, seem to have no idea of how currency markets operate. In contrast with Americans and Asians, German politicians in particular still see a “hard currency” as a virility symbol – not as a threat to economic performance or an indicator that interest rates are probably too high.
There is only one leading European politician who seems to understand the dangers of an overstrong euro. This is Nicolas Sarkozy, who travelled to Brussels this week to plead for a more expansionary economic policy in Europe. But his pleas were met with ridicule from the other governments and the ECB. Within two months of promising to spark an economic revival, the new French President has already been paralysed by the rules of the eurozone.
That is the reality of life in today’s Europe – and one of the main reasons why America, despite all its problems, will continue to dominate the world economy in the decades ahead.
Read the whole thing.
8 Comments:
By 
Mystery Meat, at
Thu Jul 12, 11:59:00 PM:
For the time being, the dollar is still the world's reserve currency. With some exceptions (Iran), oil is paid for in dollars. So the strong Euro is giving the EU a built-in discount on their oil purchases.
The EU has a good chance of foundering due to various economic shenanigans from some members. Some want the currency to stay high, others want it to come down to improve their export situation. Other countries (i.e. Greece) have been known to cook the books to conceal serious financial irregularities.
This is from EU Referendum, a UK blog:
"A mere two weeks after Romania is warned by the Empire that it has failed to do enough to tackle high-level corruption, what does the EU commission do?
Well, having decided not to impose sanctions, it does the obvious thing. It awards the province €19 billion in (slush) development funds.
The first funds are due to arrive within days and, in an egregious example of hope triumphing over experience, EU regional policy commissioner Danuta Hubner says that the Commission would cooperate with the government to prevent "irregularities" in spending EU funds."
Everything seems to be under control. Not to worry.
By 
, at
Fri Jul 13, 12:24:00 AM:
I knew before I even looked at the article text that this was going to be (yet another) "stupid Euros" post. Man, it's going to be a good day for snowballs in hot places before the EU can ever do anything right, at least on this blog.
By SR, at
Fri Jul 13, 12:36:00 AM:
TH: The main reason the value of a currency falls is that there is too damn much of it in circulation compared with what it can buy. A very stable currency would be preferable. Contrary to the post, a stable currency would be a strong one as it would be reliable.
By , at
Fri Jul 13, 12:45:00 AM:
It isn't just the issue of the Euro, even though a fair knowledge of International Macro Economics and the Currency Exchange Markets make great learning tools.
Just look at the Galileo project, AirBus, BAE and the EuroFighter and you have a lot of other examples of design by committee with poor quality results.
Even with a Euro with more parity, these projects would all have issues.
By , at
Fri Jul 13, 12:49:00 AM:
Europe was pretty good when it was a series of sperate nations but once it formed the EUROWEENIE UNION its a mess and once they replaced their various curencys with the EUROWEENIE they are a mess
By TigerHawk, at
Fri Jul 13, 06:13:00 AM:
Hey, Phrizz11, at least the linked article was published in a European newspaper and (I believe) written by a European...
But your comment does give me a good idea for a post ... things I think the Europeans do better than us!
It could be coming as soon as this weekend.
By Purple Avenger, at
Fri Jul 13, 08:20:00 AM:
The whole EU idea will turn out to be a slow motion suicide pact eventually.
By , at
Fri Jul 13, 03:11:00 PM:
This has been one of the smartest moves the Bush administration has done to keep the economy growing as it has by not making any monetary policy decisions that would lessen the dollars supply. In the Robert Rubin days he was, and still is, a very big proponent of a strong dollar and he helped make changes to see that happen.
I still found the article tremendously smug in its broad assumptions about America's standing in the world.At the end of the day the next closest economy is one third as big as ours. On an average year of growth our 3% will still be more then China's annual 10% growth in real dollars (roughly $400 Billion per annum vs. China's $300-$350 Billion.) Granted these have not been the best years for America on the world stage but we have a very long way to fall and other countries have a very big hill to climb in order to catch us.
