EURO TOO STRONG? OR USD TOO WEAK?

Money is funny. On the one hand, everyone wants their money to be worth a lot. It's one indicator of a strong economy. Another indicator of a strong economy, though, is lots of exports, as in, lots of other countries buying your country's stuff. Now, if your money is worth too much compared to other countries' currency, that will mean that your stuff is too expensive for them. So, you don't want your money to be too strong or too weak.

German Chancellor Gerhard Schroeder is now saying that it he is concerned that the Euro is doing too well against the USDollar and that European exports may be in danger. He went on to say that he'd like to see the European Central Bank (Europe's answer to the Federal Reserve System) do something to slow down the Euro's growth, which a July 11, 2003 EUobserver.com article says is the cause of slowing exports, hurting German exporters.

Meanwhile, a July 11, 2003 article at Gulf-Daily-News.com reports that the European Central Bank President Wim Duisenberg is urging Asian economies to not link their currencies' exchange rate to the USDollar because, as the article says Asian economies are often behaving in substantial difference to the US economy.

What does all this mean? It seems to mean that the EU is trying to create a balance between the US, EU and Asian economies. Let's hope it works.

Read the EUObserver.com article to try and make heads or tails of this issue yourself.

Or check out the article at Gulf-Daily-News.com (based in Bahrain) and see if that helps.





From EUObserver.com:

Schröder calls for ECB action on euro

German Chancellor Gerhard Schröder has called on the European Central Bank to intervene over the strong euro - just hours after the ECB held interest rates at 2 per cent and its President Wim Duisenberg called on the European leaders to focus on much needed reforms instead.

Speaking for the Financial Times, Mr Schröder said he assumed "the intelligent people in the leadership of the ECB discuss the question every day of whether they have done enough in the context of the dollar/euro exchange rate to maintain the competitiveness of exports from Europe."

The German Chancellor blames the strong euro for contributing to the economic hardship of his country - hitting mainly exporters and slowing growth.

Mr Duisenberg, however, insists that the bank had already contributed significantly to stimulating growth by recent interest rate cuts and current monetary policy is "on a good track."

Presenting the interest rate decision in Frankfurt Thursday (July 10), Mr Duisenberg urged European governments to tackle rising budget deficits and reform their labour markets.

However, analysts predict that the ECB may cut the rates as early as in September, following the European Commission´s forecasts for possible further stagnation in the Eurozone later this year, with the growth only reaching 0 to 0.4 per cent.

From Gulf-Daily-News.com:

ECB urges loosening of dollar links

LONDON: European Central Bank President Wim Duisenberg added to pressure on Asian countries yesterday to let their currencies appreciate versus the dollar, saying existing dollar links contribute to economic imbalances. He was speaking at a news conference after the ECB's decision to leave interest rates steady.

"You might also include the imbalance that exists in the world in the large and fast growing economies in Asia, (which) broadly speaking have an exchange rate policy that links their currency to the dollar, despite the fact that their economic developments are sometimes very different from those in the US," Duisenberg said.

The ECB chief also said of the recent downward correction in the euro: "We saw with some relief that the strong movements of appreciation which were evident in the months before seem, at least for the time being, to have been interrupted."

This marked the first time an ECB policy-maker has applauded the calming of the upward march in the euro, which makes an export-led recovery for the euro zone, desperate for something to underpin growth, ever harder.

Sluggish US growth and a massive US current account deficit drove the dollar down across the board earlier this year, especially against the euro, pushing that currency to a record low beyond $1. 1930in May.

But growing optimism about the US economy pushed the euro off its peaks in recent weeks, with the single currency retreating to a two-month low of $1. 1253this week.

The euro has borne the brunt of the dollar depreciation because Asian central banks, especially Japan, have been intervening heavily in currency markets to curb their currencies appreciating in order to support their export-dependent domestic economies.

China, whose yuan is pegged against the dollar, is also resisting calls from policymakers especially the US to move towards a flexible exchange rate.