November 30, 2004

Dollar weak? Euro weaker

Here’s a thing. While the dollar’s slide against the euro is making all the headlines, the Esperanto itself is losing value. No, really.

Even after the “brutal moves” it’s made versus the greenback over the last 2 months, the Esperanto currency has managed to lose value against nearly all the currencies of its more important trading partners. It’s dropped against both kronas - Norwegian and Swedish - as well as the Swiss franc, the Japanese yen, the Hungarian forint, the Czech koruna, the South Korean won...

On a trade-weighted basis, the Euro Index has reached just 105. Okay, that’s up from a record low of below 80 in 2001. But the rise has been capped since January this year, because the US only accounts for 15.7 % of Europe’s total exports. Asia accounts for 19.1%. Japan alone makes up 3%. The UK accounts for 18.3% of Euroland’s trade...and even against the British pound, which the euro has pushed back from a low of £0.66 since June to £0.70 today, the Esperanto hasn't budged from a year ago.

So despite all the bleating from Paris, Frankfurt and Milan, the competitive advantage of Euroland has not yet vanished. But their currency might...especially if the printing presses keep running so fast, while the sovereign Euroland governments keep ignoring the Growth & Stability Pact.

Just today, the President of the European Central Bank, Jean-Claude Trichet, has slapped down a request from Germany to have its contributions to the EU budget excluded from Brussels’ calculation of its budget deficit. German finance minister Hans Eichel complained it was "unfair" that countries paying more money into EU coffers than they receive in subsidies should be punished for exceeding the Euro’s budgetary threshold of 3% of GDP. "In the 3.5 percent German public deficit, 0.5 percent is linked to its net contribution to the EU budget", said Herr Eichel. But speaking in the European Parliament today, M.Trichet replied, "we do not see how we could maintain the credibility of the Stability and Growth Pact if we eliminate certain types of spending ...those public spendings are public spendings...this is the unanimous sentiment of the ECB".

So just how strong is the euro right now? Not very...and no wonder.


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