Friday, May 18, 2007

Fun and games

Thank goodness we have some serious journalists left who keep an eye on the boring stuff, while the children play, as in Ambrose Evans-Pritchard. He is telling us of the strains building up between France and Germany over the strength of the euro.

If anything is going to bring down the "evil empire" of the European Union, it is the wider economy so, when we see a schism building between the two drivers of European political integration – France and Germany – it is time to sit up and take notice.

Thus it is that Ambrose records that France and Germany have begun to clash openly over control of monetary policy in the eurozone, taking starkly different views about the rising threat of inflation. So bad has it got that the heads of the Bundesbank and the Banque de France have contradicted each other in public, exposing an emerging rift between Europe's north and south.

With Sarkozy at the helm, things are shaping up nicely for a confrontation between France and the European Central Bank, something that has been waiting in the wings ever since Chirac’s prime minister Villepin flagged up the issue of exchange rate policy last December. It was then that he started making threatening noises about "taking back our sovereignty".

Now with the ECB signalling that it is poised to raise interest rates to 4 percent in June, on the back of the Bundesbank' concerns about domestic inflationary pressures, France's bank chief is denying that there is any inflation risk.

Writes Ambrose, the north-south clash reflects the yawning gap between a resurgent "Teutonic Tiger" conquering markets in Asia and Eastern Europe, and a sickly France being left behind. The strong euro is slowly asphyxiating French exporters. Renault reported a 10.5 percent fall in sales in April.

In Germany, however, where IG Metall, the car workers' union, has just won a 4.1 percent wage rise, order books are full, and profits are surging. Unemployment is tumbling and wage pressure is thus increasing.

With the rest of the "Club Med" bloc lining up behind Paris, and Italian premier Romano Prodi saying: "I am worried about the relentless rise of the euro... we have reached a point where it has become truly a burden," the stage is set for some serious fun and games.

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