Euro-Dollar Divide
July 12, 2007
The euro's strength was also a topic for French and German leaders on Wednesday as French President Nicholas Sarkozy called for the European currency's rise to be slowed, while Chancellor Angela Merkel said that was a step Germany, Europe's leading exporter, would not make.
"I really do not want to go down that road and neither does the German government," Merkel said in an interview with RTL television.
In a report released Wednesday, the investment house HSBC Trinkaus & Burkhardt said the euro's climb had now cleared the way for the common currency to shoot past the $1.40 level with the next resistance marker coming at $1.4160. In early trading Thursday the euro reached $1.3791, surpassing Wednesday's record.
"The euro reflects the strength of (economic) developments in Europe," the European Central Bank's chief economist Jürgen Stark told journalists in Frankfurt.
Added expense to European exports
But a strong euro represents a risk to many German exporters as their products become more expensive outside of the 13-member euro-zone, according to Deutsche Bank's chief European economist Thomas Mayer, who said the current exchange rate is "going to leave a mark on the economy."
Olaf Wortmann, an economist at the German Engineering Federation, said several companies are already having problems.
"Many engineering companies are already experiencing a strong headwind in foreign markets," he said, adding that companies in the federation are losing contracts to American companies that are less expensive due to the dollar's weakness.
Auto companies' shares drop
The euro's climb has also set alarm bells ringing on European stock markets as shares chalked up their second day of falls Wednesday.
Germany's DAX index was down 1.3 percent, UK's FTSE 100 index dropped 0.5 percent and France's CAC 40 was down 0.8 percent.
German carmakers were hit particularly hard with BMW dropping 2 percent, Daimler losing 2.4 percent and Volkswagen shedding 1.8 percent.
Doubt over long-term effects
But German Finance Minister Peer Steinbrück said the German and European economies had little to fear from a strong euro.
"The competitiveness of European economies is decided not on the currency markets, but by their capacity for restructuring and innovation," he told the German daily Süddeutsche Zeitung.
A forecast by the German Institute for Economic Research also struck a more relaxed tone.
"We are not currently expecting the euro's appreciation to put a damper on the German economy," Stefan Kooths told Reuters news agency.
The common currency, which was introduced in January 2002, hit a record low of 82.52 US cents in October 2000.