Friday 29 February 2008

Reactions to the Euro’s Record High

SPIEGELONLINE INTERNATIONAL: The euro has reached a record high of $1.50. How much higher can it go and does the high-flying euro threaten jobs? SPIEGEL ONLINE talks to economists Thomas Straubhaar, Christian Dreger and Peter Bofinger about the enormous risks -- and few benefits -- of the high euro.

SPIEGEL ONLINE: Mr. Bofinger, the euro keeps climbing and climbing. How much higher can it go?

Bofinger: There's no end in sight at the moment. Experience has shown that the dollar is under pressure when euro interest rates are higher than dollar interest rates. That's why I was in fact surprised that it took the euro so long to crack the $1.50 threshold.

SPIEGEL ONLINE: What are the risks for Germany?

Bofinger: German exports have stagnated in real terms since August. The rising euro exchange rate, together with a significantly weaker world economy, carries substantial risks for an export-oriented economy like Germany's.

SPIEGEL ONLINE: When prices rise, returns on exports decline. BMW is currently using this argument to justify laying off 8,100 workers.

Bofinger: That isn't far-fetched at all. When the euro's value increases from $1.30 to $1.50, there isn't much left over in the way of profits. It comes as no surprise that German industry is about to face a new wave of cost cuts.

SPIEGEL ONLINE: Are there also positive effects?

Bofinger: Yes. The appreciation of the euro softens the rise in the price of oil. This also cushions the effect of prices rising too fast in the euro zone. ’There’s No End in Sight’ >>>

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