Thursday, November 11, 2004

You pays your money and you takes your choice

The euro has risen to an all-time high. Well, the all-time is not such a long time as the currency has been trading on the foreign markets only since 1999. All the same, breaking through the $1.30 barrier, even briefly, was spectacular … and traumatic.

Remember those heady days of 1999 when the euro was going to rival the dollar? Remember the crowing when it looked like the American economy was weakening in 2001? Remember the joy of politics vanquishing economics, as Le Monde gleefully described it at the time?

Well, it seems Lady Thatcher was right. You can’t buck the market. Not that we didn’t know, but eurocrats are a bit slower than the rest of us. A strong euro is not even a mixed blessing. It is a curse, pure and simple. The thing is, EMU did not do all the things it was supposed to. It did not automatically make the member countries reform their social and economic systems; it did not strengthen growth; it did not raise economic indicators. So, with most of the Eurozone economy still in doldrums, a strong euro is little short of a disaster, as it is likely to harm exports.

The Commission has now rather worriedly agreed with the ECB President Jean-Claude Trichet, who said, rather curtly on Monday:

"The recent moves, which tend to be brutal on the exchange markets between the euro and the U.S dollar, are not welcome from the standpoint of the ECB."
So now we know.

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