Germany And France On Collision Course

THE EURO has climbed to stratospheric levels in recent months, approaching $1.40 to the euro. But Ambrose Evans- Pritchard thinks it will all end in tears. The high euro is sitting on the back of a revived German economy, achieved by a signal achievement of German companies in moderating the wages of German workers.

By screwing down wages, Deutschland AG has deflated costs since 1995 by 20pc against France, 30pc against Spain, and 40pc against Italy.

Unfortunately the other countries in the euro are hurting badly, France in particular, and they want a weaker euro. In particular the French love their Airbus.

Airbus chief Louis Gallois said a rate above $1.35 means death for European aviation. "If there is a prolonged slippage in the dollar much beyond that, then we need to ask ourselves if we can still build airplanes in Europe," he said.

The problem all along for the euro is that it needs harmonized economies to succeed. But the EU nations are not harmonized economically. Each country sports it own beloved home-grown market distortions reflecting its correlation of political forces.

The Germans are sensitive to the need for a successful economy. They had three economic meltdowns in the twentieth century and it seems to have concentrated their minds.

Plus they are, or were, the most advanced country in Europe.

However it may seem from the point of view of schadenfreude a economic row between Germany and France really would not be fun for anyone.

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Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.

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