Money trouble is rattling Euroland as the euro - common currency
for 11 countries - hits a rough spot two months after its launch.
The skid could end before it has time to deeply impact trade. But
if Europe can't afford US goods, American industry takes a hit -
as the dynamic dollar gains from its popularity in world markets.
For now, while the euro has lost some 7 percent of its value in
relation to the dollar, raising questions about Europe's early
success at forming a powerhouse monetary union, the drop doesn't
appear to trouble European economists.
"The euro should be in the future a bit stronger," says Ulrich
Ramm, chief economist in Frankfurt of Commerzbank, one of Germany's
What's happened, economists explain, is that the economic paths of
Europe and the US have dramatically diverged: The US direction is
Europe's economic outlook has slipped.
That difference has helped make the dollar more attractive on
On Friday, the US Commerce Department revised upward the annual
growth rate for national output after inflation to a fantastic 6.1
percent in the fourth quarter of 1998. It was the fastest pace in 15
For 1998 as a whole, US gross domestic product (GDP) - the total
national output of goods and services - rose a real 3.9 percent.
That's the third straight year with growth above 3 percent.
And economists have been boosting their forecasts sharply for
1999. The consensus now calls for still-handsome 2.5 percent growth
this year. In Europe, economic growth numbers are being cut.
J. Paul Horne, European economist for Salomon Smith Barney in
London expects after-inflation growth in the 11 euro-zone economies
to run about 1.8 percent this year.
By some estimates, Europe's dominant economy, Germany's, shrank at
an annual rate of 1.8 percent in the fourth quarter of last year.
However, Commerzbank's Mr. Ramm predicts Germany's real growth for
all of 1999 will be positive.
Germany's unemployment rate stands at 11.7 percent, typical of
euro-zone nations. The US jobless rate is a mere 4.6 percent.
On Wall Street, Friday's GDP news raised concern that the Federal
Reserve might decide to hike interest rates to prevent a renewal of
inflation. As a result, bond prices rose and stock prices fell.
In Germany, Finance Minister Oskar Lafontaine has been urging the
European Central Bank (ECB) to lower interest rates.
European politicians "might do themselves a favor" by putting less
public pressure on ECB monetary policymakers, says Mr. Horne. The
bank, which took over monetary policy from the 11 national central
banks at the start of the year, is trying to establish itself as a
tough inflation fighter. …