Excessively strong Euro could be bad for Europe

Some Europeans are beginning to feel the pinch of the strong currency. Just goes to show that currency strength is largely an issue of pride, and strengthens previous arguments on this board that the U.S. Federal Reserve and that the Bush administration are quite alright with the weakening dollar: http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=ab3e9dc1-0c21-492b-8b8b-0950f6fb58d1 ECB, Politics, Business Spar Over Euro Rate Fri, Sep 21 2007, 13:46 GMT By Gabriele Parussini Of DOW JONES NEWSWIRES PARIS (Dow Jones)–The European Central Bank again struck out at politicians and industry leaders who warn that the soaring euro will cost European jobs by making exports too expensive in foreign markets. Speaking in Paris even as the euro punched through a new record of $1.41 Friday, ECB board member Lorenzo Bini Smaghi urged politicians to exercise “greater verbal discipline” when talking about exchange rates. “Only the president Of the ECB and the Eurogroup should comment on the euro exchange rate,” Bini Smaghi said. “Statements made by national finance ministers, especially before Eurogroup meetings, only undermine the authority and effectiveness of the Eurogroup and its president in this regard,” he said. Bini Smaghi comments came after French President Nicolas Sarkozy in a televised speech Thursday called for ECB President Jean-Claude Trichet to cut interest rates to stem the strength of the euro on exchange rate markets. French Finance Minister Christine Lagarde followed up on Friday, saying in Beijing she hopes the ECB would examine the consequences the euro’s strength “react accordingly.” “We hope it (the ECB) will examine the consequences (of the current exchange rate) at its next meeting and then react accordingly,” she told journalists. Continued concerns about the U.S. economy are keeping the dollar on the decline in Europe Friday, extending declines triggered by the U.S. Federal Reserve’s decision earlier in the week to slash interest rates by 50 basis points. The euro’s strength, together with the recent jitters in global credit markets, were behind a sharp decline in the September purchasing managers indices for the euro zone, reported early Friday. Business leaders fear that continued euro strength will speed the slow down and cost jobs. “If the euro holds on to this level for one year, that’s equivalent to a 100-basis-point increase in interest rates,” said Laurence Boone, an economist at Barclays Capital. “The ECB will take that into account when the time comes to decide whether to go ahead with a hike.” But despite signs Europe’s economy could be slowing, ECB officials continued to take a hawkish line on inflation risks. Although markets increasingly see another ECB rate increase as being unlikely, ECB officials were not ruling it out this week. Sarkozy’s complaint that the strong euro is threatening European jobs has found little support among other European politicians. But the French president is finding a new following among business leaders elsewhere in the euro zone. Ludwig Stiegler, deputy leader for the Social Democratic Party in parliament said the rising was “an alarm signal for export-oriented industry” at the core of the German economy, threatening jobs in Germany and elsewhere in Europe, the Associated Press’ German service reported Thursday. Stiegler’s party belongs to Chancellor Angela Merkel’s government coalition, whose official line has been to staunchly defend the ECB’s independence from political influence. In Italy, Luca Cordero di Montezemolo, head of Italy’s largest business group, Confindustria, Thursday called on the ECB “to do something” about the strong euro, saying he would put pressure on the Italian government to lobby the central bank to bring the value of the currency down. French plane maker Airbus is seen as one of the more vulnerable of Europe’s industrial giants. “Obviously, we’re very vigilant, and we don’t want the euro to strengthen,” said senior Airbus Chief Operating Officer Fabrice Bregier said Friday. The euros negative impact on European business “is starting to be realized at the political level, and that’s very important,” he said in a French radio interview. Bregier said the company’s EUR2 billion annual savings plan was based on a euro-dollar rate of $1.35. At current levels, savings would have to be sought elsewhere and the plane-maker would have to switch to dollar-based suppliers. -By Gabriele Parussini, Dow Jones Newswires; +331 40171740; gabriele.parussini@dowjones.com Simon Hall and David Pearson contributed to this article. (END) Dow Jones Newswires September 21, 2007 09:46 ET (13:46 GMT)