Exchange Rate
March 11, 2008
The euro's rise on foreign exchange markets could endanger economic growth in the euro zone, the European Union's Slovenian presidency said on Tuesday, March 11, as the euro hit a record high just shy of $1.55.
"Of course this is a problem that we are witnessing on a daily basis," Slovenia's Finance Minister Andrej Bajuk said in an Internet broadcast. "We have come to the conclusion that these movements may not have a positive effect when it comes to economic growth and development."
The value of the euro, the currency in 15 European countries, has continued to climb as experts say the US economy slips toward a recession.
"We believe that exchange rates should ... reflect the realities of the economy," Bajuk said. "We also believe the foundations of the European economy are solid and wholesome."
The European Central Bank chief Jean-Claude Trichet had on Monday said he was "concerned by the excessive exchange rate fluctuations." The EU Economic and Monetary Affairs Commissioner Joaquin Almunia also said currency markets were among his key concerns.
"The excessive volatility indeed is a matter of concern," he told journalists on Monday.
German economy to survive turmoil
Tuesday's jump followed the announcement of better-than-expected investor sentiment in Germany.
"Experts are more optimistic for the growth of the US economy in the next six months," the Mannheim-based Center for European Economic Research (ZEW) said in a statement accompanying its monthly report. "Moreover, they expect the dollar to appreciate versus the euro. This should benefit export-oriented sectors of the German economy."
ZEW's economic indicator for Germany rose 7.5 points in March to minus 32.0 points after plummeting to minus 39.5 in February, the lowest point since January 1993. Economists had predicted it would drop to below minus 40 points.
"The optimism of the financial analysts is presumably based on the hope that the peak of the financial market crisis will be overcome in half a year and that business dynamics will not weaken more strongly than expected to date," ZEW President Wolfgang Franz said upon the report's release.
Though the financial experts surveyed seem to feel good about the near future, they gave a more negative assessment of the current situation in Germany. That indicator dropped by 1.6 points to 32.1 points due to the country's weak economic growth figures.
Interest rates to remain stable, exports rise
The euro's leap to nearly $1.55 also followed statements Tuesday by Axel Weber, head of Germany's central bank, and a member of the European Central Bank's rate-setting council, who ruled out a drop in interest rates.
A high euro serves as a double-edged sword for the euro-zone economies. While essential imports like oil, which is typically priced in dollars, become cheaper, its exports become more expensive abroad, making them less competitive on the global market.
Since the euro has been on the rise, Germany has continued running up large trade surpluses. According to data released Monday, German exports rose by a larger-than-predicted 3.8 percent in January.