French minister warns on fall of the dollar

Financial Times ^ | December 23 2004 19:35 | Peggy Hollinger in Paris, Steve Johnson in London, and Jennifer Hughes in New York

[woofie]

Hervé Gaymard, France's new finance minister, on Thursday warned of a global "economic catastrophe" if the US, Europe and Asia did not work together to stem the decline of the dollar against the Euro.

As the dollar reached new lows against the European currency, Mr Gaymard voiced the strongest criticism yet from a European finance minister of the dollar's decline, saying it was "absolutely essential" that the US understood the need for "co-ordinated management at the world level" at the next G7 finance ministers meeting in February.

"If we stay as we are, with no co-ordination, one can imagine a catastrophic economic situation at the global level," he said.

However, as the "strong dollar" policy espoused by John Snow, US Treasury secretary, is nothing more than a laisser faire "markets-know-best" approach, most in the currency market believe Mr Gaymard's appeal would fall on deaf ears.

"His outburst is regarded as toothless. Co-ordinated intervention strikes the market as off the radar screen at the moment," said Mark Cliffe, chief economist at ING Financial Markets.

Mr Gaymard, who took over the portfolio only three weeks ago, was speaking on a visit to a General Motors factory in Strasbourg. His comments, part of an answer to a question for a local businessman, reflect wider concerns that Washington's refusal to stem the dollar's decline could hurt European competitiveness.

The dollar is set to record a third straight year of losses for the first time since 1987, when the world's leading nations signed the Louvre Accord to bring stability to exchange rates.

French concern over the dollar reflects worries about export and growth prospects as the country struggles to meet its eurozone obligation to keep its budget deficit below 3 per cent of gross domestic product.

In spite of calls from politicians for intervention in foreign exchange markets, Jean-Claude Trichet, president of the European Central Bank, has not gone further than saying recent currency moves are "unwelcome".

On Thursday, the US dollar fell to a record low, reaching $1.3502 against the euro before easing back to $1.3488.

Additional reporting by Ralph Atkins in Frankfurt

[BurbankKarl]

Only Herve I know

[jrfaug06]

French want us to raise rates to strengthen the dollar. Bush says, "Nuts".

John

[nightdriver]

It sure makes it easier for European airlines to buy Boeing airplanes and also makes it much more expensive for American airlines to buy Airbus.

What's not to like?

[wu_trax]

Only because the french don't want it it doesn't become a good thing.

For the US economy to gain anything out of this, the average standard of living in the US has to fall. If it was only 'it's good for our exports and bad for french imports' everyone would devalue their currencies.

Also, the Euro isn't overvalued right now, just as little as it was undervalued 4 years ago. If anything the Dollar is still overvalued because some Asian central banks, especially China, still support it against the market. The exchange rates don't follow the purchasing power, the purchasing power follows the exchange rates. If the investments in the USA are larger than the trade deficit the dollar rises, if not it falls. It really is that simple.

And I don't see any way to do something about it. All the big central banks can do is slow down the decline of the dollar, not stop it. If the ECB would try to stop it, it would end up with lots of worthless Dollars (in the sense that they would never again be able to sell them), pretty much like China and Japan right now. The Federal Reserve can't even do that, eventually they would run out of foreign currencies to sell. They can rise the interest rates further and faster in the hope that would attract more foreign investors, but that would be bad for economical growth.

[Jimmy Valentine]

He is really worried about the Euro. They have been artificially propping up that currency in an effort to give it legitimacy. Interesting to see how long they can sustain it. The dollar is the benchmark for so many other currencies that the pressure on the Euro is extreme.

Regards,

[wu_trax]

Where did you get that ideas from?
The big central banks intervened once when the euro hit 85 us-cent a few years ago, but it went up on its own ever since.

[tm22721]

The dollar exchange market ($1.5 trillon a day) is uncontrollable by any single entity including the US government.

Watch the dollar index. If it plunges below .80 there will be an acceleration of international selling.

BUMP

[sausageseller]

My Greek friend just got back from his annual visit to the "home country" Said the same things about the conditions in Greece!

[bert]

Here's a few intersting graphics.......

[pointsal]

Let the darned dollar fall. How many Airbus planes can be sold when the price is higher?

[Polybius]

Also, the Euro isn't overvalued right now, .....

See Posts 18 and 28.

If our Spanish, Dutch and Greek friends and acquaintances are all telling us that their purchasing power in their own countries has taken a drastic hit since the Euro was introduced and that the Euro is seriously impacting their ability to afford live in their own countries, how can the Euro not be over-valued?

[timestax]

$$$$ bump

[meatloaf]

"The high cost of living is also affecting the number of children that young European married couples believe thay can afford." Taking that into consideration along with Eourope's already falling birthrate and the consequences will ocurr sooner. Not enough individuals entering the job market to pay retirees' pensions which means more taxes which means less discretionary income. Europe is on a downward spiral.

I'm hoping we can get the Middle East straightened out before Europe goes in the crapper.

[americanbychoice2]

I don't believe you would make a good economist. You just get your information from the EU socialist reporters, who have no clue.
In the past, the US has always propped up the dollar. Bush and Greenspan decided not to do that anymore.
As far as the standard of living having to fall in the US, that's only wishful thinking on the part of the overtaxed French and Germans. I guess misery loves company.
If you really want to take a look at problems, now and in the future, look at those two countries. The growth rates as well as the population growth rates have been and will become more pathetic than they are now.
Dollar values rise and fall. Right now, I want the dollar to stay low. (Even though it pains me when I have to go to Europe and pay those high prices for anything I need)
Just like we helped Germany get back on it's feet after the war with a 4.6 to one exchange rate to open up our markets and American companies to move in and get the economy going again, the US will do the right thing in respect to our currency. Finally, someone who is looking out for our country instead of pacifying "Old Europe".

[wu_trax]

I don't believe you would make a good economist. You just get your information from the EU socialist reporters, who have no clue. In the past, the US has always propped up the dollar. Bush and Greenspan decided not to do that anymore.

well, i think I'd do OK as an economist, but anyway. The US didn't push up the value of the dollar. The US was just a very attractive place to invest money. If people buy lots of a currency it tends to become stronger against that currency (BTW ecept for the late 90s the dollar never was especially strong, it lost value almost constantly)

and ofc the standard of living has to fall, else American companies gain absolutely nothing out of the weaker dollar. If the dollar falls imports become more expensive. There are two possibilities:

a) You pay more for that product, because you can't produce enough of it on your own (oil and other resources you don't have but need)
b) you produce the stuff on your own, but that is more expensive than imports before (because else you wouldn't have imported in the first place)
Then there are the wages: they can't rise, because for me as a European it doesn't matter if i pay 100€ for a product because its production did cost 100$ and the exchange rate was 1:1 or if it costs 100€ because its production costs 130$ and the exchange rates was 1:1.30. Works within the US just the same way.

higher prices + same wages = lower standard of living. pretty simple actually.

[americanbychoice2]

Yes, on one thing you are correct. You take things in very simple terms and economics is somewhat more complex.
Did I ever mention to you that when I was European Director for my company, one of the largest worldwide, it was in finances and economics?

As usual, you are mirroring the EU propagandists. I do read the papers evry day and I can detect talking points when I see them.
Just as you were very uninformed about the pension situation the other day you are misinformed again.

We do have enough oil resources to become independent from foreign oil. (Germany and France aren't).

We, in America have a lower inflation rate than the EU, the world economy is booming except, guess where........"Old Europe".

The rift between the EU and US is widening, not narrowing.

Just imagine, the democles sword hanging over your head: You can't manage your economy even with the (temporary) weak dollar, how will you cope when, not if, the dollar strenghtens? Your inflation will skyrocket and the loss of marketshare you have already experienced will absolutely bankrupt you.

I know Schroeder and Chirac have have hyped up the anti-americanism, it is already starting and it will ultimately bite you in the arse.

Just wait and see what wonderful things America has in Store for "Old Europe". Our people aren't stupid. Soon it is time to get even economically. You can't even see it coming yet. I do know what is going to come your way.

[Jimmy Valentine]

Wait and see. Why do you think other countries (England, Norway.etc.) haven't adopted the Euro? It is not just national pride.

The Euro will devalue itself in 2005 especially after GW bush gets another tax reform plan going and we show some budget restraint.

That's where I get that from.

regards,

[wu_trax]

Yes, on one thing you are correct. You take things in very simple terms and economics is somewhat more complex. Did I ever mention to you that when I was European Director for my company, one of the largest worldwide, it was in finances and economics?

I don't care what your job is / was. Just answer to my point. There is neither any evil European propaganda nor any assumptions or oversimplifications in it. its all simple market logic. As a good American you should know about the free market.

We do have enough oil resources to become independent from foreign oil. (Germany and France aren't).

Obviously its more expensive to get it than to get oil from Saudi Arabia, or you wouldn't buy in Saudi Arabia, would you?

We, in America have a lower inflation rate than the EU, the world economy is booming except, guess where........"Old Europe".

The inflation in the euro-area was about 2% this year, in Germany it was 1.6%. And in the US? Oh, wait, i guess it's all evil socialist propaganda, isn't it? And why do you have to start with Europe again? We don't have a trade deficit problem.

The rift between the EU and US is widening, not narrowing.

Again, not on the topic, but we'll see about that in the next year.

Just imagine, the democles sword hanging over your head: You can't manage your economy even with the (temporary) weak dollar, how will you cope when, not if, the dollar strenghtens? Your inflation will skyrocket and the loss of marketshare you have already experienced will absolutely bankrupt you.

As i already told you our exports are doing fine so far. A 10% increase in one year with a stronger currency isn't that bad. Also, did you even remotely understand anything i wrote? In the current market situation there is only one way for the dollar and that is down. You need to import capital worth 6% of your GDP every year (that is 2/3 of the savings of the whole world), and that is only to keep the exchange rates stable, i don't even want to speculate about how much you would need to get back to parity.

I know Schroeder and Chirac have have hyped up the anti-americanism, it is already starting and it will ultimately bite you in the arse.

What does that have to do with anything?

Just wait and see what wonderful things America has in Store for "Old Europe". Our people aren't stupid. Soon it is time to get even economically. You can't even see it coming yet. I do know what is going to come your way.

I'll be here.

[wu_trax]

Norway isn't even in the EU. As for England, yes it is national pride (and 'the sun' etc.).
The budget deficit itself has no direct influence on the currency. If Bush manages to reduce it it would help to keep the interest rates down even if the dollar falls further, but thats about it. I really have no idea where all these news sites got this talk about 'twin-deficits' from. The thing that matters for the currency market is the current account deficit.

[americanbychoice2]

Apparently you don't understand market logic. I guess you need to place things in very simple terms in order to understand things as comple as economics?

Interesting that you would bring up the number 5 oil shipper to the US, can you name the first 4? The reason we are not drilling, is not because of cost, it is because of the greens in our congress, you should be familiar with those?

See, I always take the German inflation numbers with a grain of salt. They don't take into account such things as enormeous tax increases on Electricity and gas. You are paying 5 times the going rate than we do in the US.
The rift has been widening for the last 20 years my friend. In Lisbon there was a bold pronouncement: We will compete with the US, now Europe is getting further behind.
Productivity is atrocious. Unemployment is increasing. If it were not for the futures contracys companies are working with, your export would have suffered even more than it has. Predictions for next year: Germany's export will be in negative numbers compared to this year.