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Euro at $1.50 — a disaster or an alibi?

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OUKTP-UK-FINANCIALThe French can never resist blaming a strong currency for their misfortunes. So it should come as no surprise that Henri Guaino, President Nicolas Sarkozy’s influential political adviser, has said that having the euro at $1.50 is “a disaster for European industry and the economy”. Since the euro stood at just above $1.49 as he spoke on Tuesday, Guaino presumably sees the single currency area as on the edge of the abyss. 

This is manifest nonsense. European exports to the rest of the world, including the dollar zone, were booming in mid-2008 when the euro stood at just short of $1.60. The euro area had a trade surplus with the United States at the time. The steep slide in exports over the last 15 months has been due to a collapse in demand, even though the euro fell as low as $1.25.

A strong currency is not necessarily an economic handicap. West Germany’s export-fuelled post-war economic miracle was built on the foundation of a strong deutschemark.

A strong euro has kept the prices of imported commodities and energy under control and thus helped moderate inflation. That in turn enables the European Central Bank to keep interest rates low, benefiting industry.

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