Zonder. Do you think the USA is responsible for EU economic woes.?
Surge in euro rings Europe's alarm bells
By Ambrose Evans-Pritchard in Brussels
29/01/2003
European officials are increasingly alarmed by the surging value of the euro, fearing that it could be the death-blow for scores of struggling companies and drive Germany deep into recession.
While the European Commission and Central Bank both welcome the 25pc rise in the euro against the dollar over the last year as long-overdue, clear dissent is emerging from those states hit hardest by the economic downturn and those that depend heavily on exports outside the eurozone.
Their concerns coincided with comments from John Snow, the new US Treasury secretary, who told a confirmation hearing that the Bush administration would retain its strong dollar policy. He said: "A strong dollar is in the national interest."
However, jitters over Iraq have weakened the greenback and analysts believe that the large US current account could drive the currency still lower against the euro in coming months. Many believe the US government is privately happy that the dollar has lost some of its strength.
Ernst Welteke, the president of the German Bundesbank, this week warned that the dramatic upsurge in the euro was eating into the competitiveness of German industry. "It's a matter of concern if the fall in the value of the dollar is too rapid," he said, adding that appreciation could not be endured "ad infinitum".
The German government had hoped the euro would settle at about 95 US cents, giving Germany time to tackle its economic crisis, which has seen a 68pc fall in the DAX stock market index since its peak in early 2000 and a rise in unemployment to 4.5m. Yesterday, the single currency again edged up against the dollar to trade at $1.0835.
Dirk Wegener, head of Deutsche Bank's currency division, said: "The euro is likely to reach $1.15 by the end of 2003. But an overshoot to a higher level is very possible," he said. It was launched at a rate of $1.17.
Hans-Werner Sinn, president of the German IFO economic institute, said yesterday the exchange rate was starting to bite hard. "The current rate is higher than most people expected. It's hurting exports in Europe," he said. He added that the IFO business confidence index, which rose slightly in January for the first time in eight months, should not be seen as marking a turnround in economic fortunes.
The rising euro is uncovering the stresses in monetary union that were disguised when the currency was weak. The Portuguese and German budget deficits have already breached the EU Stability Pact limit of 3pc of GDP as the slowdown plays havoc with public finances.
France has received an official "early warning", but is refusing to drop plans for tax cuts and military rearmament.
Bernard Connolly, a former European Commission official who worked on the euro and is now chief economist for AIG International, said the political strains were only just beginning.
"The prospects for euroland are dreadful. There are deep worries about the effect of collapsing stock markets on pensions and financial institutions. Those countries that are already in trouble are about to enter a phase when they're going to be battered by everything at once," he said.
Ratings agency Moody's yesterday described private German banks as "among the weakest financially in Europe".
Mr Connolly said Portugal, Ireland and the Netherlands were all being hit hard by the rising euro since their economies are already uncompetitive after years of high inflation induced by interest rates too low for their needs.
Fears of war have also seen a rush into eurozone government bonds. Yesterday the yield gap between them and US Treasuries was inverted, with German Bunds yielding less than Treasuries for the first time since May last year.
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