PARIS, Oct 20 — The euro at a level of US$1.50 (RM5.04) is a disaster for European industry and the economy and results from the US policy aimed at inflating away its debt, said Henri Guaino, a top adviser to French President Nicolas Sarkozy.
He said at some point the euro’s strength against the US currency would become unbearable and Europe would have to react, most likely by printing euros that would also lead to inflation.
The euro was traded at US$1.4995 at one stage today, just shy of the US$1.50 level which has not been seen since August 2008 and which is psychologically important for financial markets.
The single currency has strengthened around 7 per cent against the US dollar since the beginning of this year.
“A euro at US$1.50 is a disaster for European industry and the economy,” Guaino, the president’s speech writer, told reporters on the sidelines of a conference of Sarkozy’s ruling UMP party.
The head of European planemaker Airbus, Louis Gallois, has repeatedly complained the euro’s strength is hurting business.
Last year he described the weakness of the dollar as a “Sword of Damocles” hanging over Europe’s largest aerospace group, particularly its civil airline subsidiary Airbus.
Guaino said the United States was “flooding the world with liquidity” and worried this would provoke an inflationary cycle.
“When the Americans create dollars and the dollar falls, there is a point at which you cannot take it anymore,” he said.
“What do you do? Either you create liquidity to bring the euro down, or you let the euro rise, rise, rise and then you are completely suffocated.”
French politicians have traditionally led complaints in Europe about the euro’s strength but some countries face more difficulties than others.
The German exporters’ association, BGA, said earlier today that trade prospects would brighten in the coming months despite the likelihood of a further rise in the euro.
European Central Bank President Jean-Claude Trichet yesterday said excessive volatility in currency markets was bad for the economy and repeated his attachment to comments from US officials supporting a strong dollar.
Guaino said he feared a round of inflation.
“Historically, we have only ever got out of such situations with inflation. We can also get out with deflation, but it’s much more painful politically, socially,” Guaino said.
But “if we lose control of inflation and there is hyperinflation, it’s a catastrophe for everyone,” he added. — Reuters
Show/Hide comments
Show/Hide comment form
