“The euro rose in London after European finance ministers yesterday said they wouldn’t push their central bank to sell the currency, which gained 18 percent against the dollar in the past year.

As of 6:38 a.m. in London, the euro climbed to $1.2702 from $1.2672 late yesterday in New York, according to EBS prices. It gained to 133.99 yen from 133.79.

“The prospect of intervention only becomes likely if the euro pushed up above $1.40,” Claudio Piron, currency strategist in Singapore at Standard Chartered Plc, said in a television interview with Bloomberg News. “The ECB’s policy is very conservative.” Standard Chartered forecasts the euro will rise to $1.40 by June.”

“The European currency’s gain last year cost Renault SA, France’s second-largest carmaker, 311 million euros ($395 million) in operating profit, Chief Financial Officer Thierry Moulonguet said yesterday.”

“For Royal Philips Electronics NV, Europe’s largest consumer- electronics maker, a 10 percent drop in the dollar cuts Philips’s operating profit by 3 percent to 3.5 percent, Chief Financial Officer Jan Hommen said at a press meeting yesterday in Amsterdam.

About 50 percent of the company’s sales and as much as 80 percent of its financial expenses are in dollars or “dollar- related” currencies, Hommen said. ”

A U.S. jobs report on Friday lowered expectations the Fed will raise interest rates soon, and any indication from Greenspan reinforcing that view will send the dollar lower, said analysts including State Street’s Kalirai.

“I expect him to stress what `patient’ means, and what that means is rates aren’t going up anytime soon,” Kalirai said. “The trend is going to continue for the dollar to go down as assets flow into higher-yielding areas.”

The failure by the G-7 to make explicit mention of the dollar’s decline may extend its slide, German government economic adviser Peter Bofinger said yesterday.

“It’s a shining example of indecision,” said Bofinger, who will join Chancellor Gerhard Schroeder’s panel of economic advisers, known as the Five Wise Men, on March 1, in a televised interview with Bloomberg News in Berlin. “I wouldn’t be surprised if the dollar’s drop continues.”

No I’m not a gold buff I’m afraid. I was brought up on the debate about the gold standard and its problems. I have no ‘handy in my pocket solution’, but I do think we should be looking urgently at this issue.

The proposal Paul Davidson gave to the G23 finance ministers in 1999 would be a good starting point. Summary here:

http://www.livingontheplanet.com/bl/archives/000040.html

Davidson told me that in January 1999 everyone was all ears, and by March it had all been forgotten. The topic I think will come back.

On the update front, today all eyes are on Alan Greenspan. But again the words are going to be a ‘famous for 15 minutes’ type phenomenon.

Fiscal topics are important Scott and Patrick, but I think what Roach calls the global labour arbitrage is the key factor here. See this post and comments if you are interested:

http://www.livingontheplanet.com/bl/archives/000203.html

and this one plus comments:

http://www.livingontheplanet.com/bl/archives/000155.html

As long as the US doesn’t stabilise this situation, deflationary pressures will prevail, and the dollar will continue to fall. How then does anyone put a ceiling on the euro? Good question. The Japanese - as Paul indicates - are printing plenty of money, but to little effect. The ECB can do likewise, although I think there are problems in the regulations here, especially if you think inflation and not deflation is the problem.

OTOH, Bernanke is committed to unconventional measures if needed, among these would be printing money to buy non dollar assets - eg Euro or Yen denominated government debt. So we could have a buying/selling war, depending on how you look at it.

It may not happen, ever. Or it could happen tomorrow (say GWB were to commit suicide and Cheney became President, or vice versa).

I will tell you all what I really think when we get to see Germany’s end-of-year inflation (deflation??) and growth numbers.

“The euro climbed for a third day in four in New York as European Central Bank Chief Economist Otmar Issing and the region’s finance ministers suggested the bank won’t sell euros to stem a two-year rally.

Euro gains help slow inflation, and “there is no point in unleashing a short burst of fire,” Issing, one of the bank’s 18 policy makers, told the German newspaper Sueddeutsche Zeitung. European finance ministers meeting in Brussels said they won’t push the ECB to sell euros.

Finance officials “haven’t shown too much displeasure over the euro’s rise,” which has taken it 46 percent higher in the past two years, said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston, which is custodian for $1.1 trillion in assets. “It’s just a matter of time before the euro makes new highs.”

“Traders bid up the euro as European finance ministers including Austria’s Karl-Heinz Grasser and Spain’s Rodrigo Rato said no action is needed beyond Saturday’s Group of Seven condemnation of “excess volatility” in exchange rates.”

““The effect of a further euro appreciation on growth would be just minor,” Grasser said on the second day of a meeting of European Union ministers in Brussels.”

““A strong and stable euro is good for Europe,” Spain’s Rato said as he arrived in Brussels.”

Don’t worry Scott, you aren’t alone here.

One of the more practical bits of knowledge that my branch of linguistics teaches is to be critical of the metaphors that underlie discourse. This makes it damn dear impossible to read the business press because economic analysis is always couched in poorly rooted metaphors. That means I’m not quite sure what makes the US economy healthier than the European one. Europe certainly has labour available to hire and capital is, as you point out, pouring in due to the high euro. Undervaluing a currency is an effective way of creating exports, but running a trade surplus is, on the long run, effectively a transfer of capital to states with trade deficits.

The US also has a good deal of underutilised labour milling around, but if your account is accurate it’s facing capital flight. Under the Bush administration, American deficits as a percentage of GDP are certainly just as high as Europe’s and personal debt is vastly higher.

I suppose there is a simpler remedy available to the US - dispose of George W Bush - than Europe. But I’m not sure that’s enough to stem capital flight, deficits or high personal debt. Europe, on the other hand, seems well positioned to lower interest rates and I have the impression that that’s what everyone expects Trichet to do. If there is strong demand for European securities, then they don’t need nearly as high interest rates to keep capital in the market, right? Lower interest rates are certainly a very critical factor in business development, and lower interest payments on public debts free up state capital to spend or to reduce taxes. If France and Germany lose in the ECJ for breaking the stability pact - and then actually accept the judgment and cut spending or raise taxes - this certainly minimises the risk that European governments will take advantage of lower interest rates to run up new deficits. It seems to me that the remedies avaiable to Europe are at least as attainable as those available to the US.

My biggest frustration with economics is that the more I think I understand, the less it makes sense.