The economy

Something I absolutely do not understand. And since there are economists on opposite sides of any argument, I don't hold out any hope of understanding. But I'm willing to pass this bit along anyway....

Joaquin Almunia, Europe's monetary affairs commissioner, said last week: "The more the euro rises, the more voices will start asking for intervention. It has to be a coordinated effort but it seems that our friends across the Atlantic aren't interested."

That sums things up rather nicely. There are two reasons why the Bush administration is not willing to play ball with the Europeans. The first is that it sees a lower dollar as inevitable given that the US current account deficit is running at $50bn-plus a month. A lower dollar makes US exports cheaper and imports dearer.

According to this interpretation, the Americans are now simply bowing to the inevitable. Stephen Lewis, of Monument Securities, says the markets have finally lost patience with the laxity of Washington towards the twin trade and budget deficits, pumped up by cheap money and tax cuts. "The truth is that the US fiscal and monetary excesses, which have been essential to keeping the global economy afloat in recent years, are no longer tolerated in the foreign exchange markets," he said. "The status quo is not an option. The only question is how the pain of adjustment will be apportioned."

The second reason is that the Bush administration has neither forgotten nor forgiven France and Germany for the stance they adopted over Iraq. Jacques Chirac and Gerhard Schröder weren't interested in helping the US to topple Saddam, and now it's payback time. If the European economies are suffering as a result of the weak dollar, why should the US care? What's happening in the currency markets is simply American unilateralism in a different guise.

In the short term, therefore, the dollar looks like a one-way bet. City analysts are already talking about it hitting $1.35 against the euro, and given the tendency of financial markets to overshoot, nobody would be that surprised if it fell to $1.40 over the coming months. A smooth and steady decline - which is what [ John Snow, US treasury secretary,] is trying to finesse - would do little damage to the US economy, but it would hit Europe hard.

  Guardian article

I have no problem believing that the Bushites would try to apply pain around the world in retaliation for "disloyalty".

Why do they hate us? We're so honorable and good. It must be they're jealous of our freedoms.

Washington may have another reason - apart from getting its own back - for allowing the Europeans to suffer. The US is desperate for the Chinese to revalue the yuan, but has so far utterly failed to get Beijing to agree to abandon its dollar peg. The Chinese, for political as well as economic reasons, are determined to resist American pressure.

[...]

It has to be acknowledged, however, that you would be hard pressed to find a financial analyst who believes Snow is capable of this level of sophistication. After his performance in London last week, one said: "I would sell the currency of any country of which he was the finance minister." The likelihood is that even if the Americans were to use the Europeans as a proxy, the Chinese would still resist.

[...]

The US is happy to go it alone for now, since this is the forex equivalent of the quick push to Baghdad. Life is likely to get tougher later.