Us Risks a Downhill Dollar Disaster

George Bush 'foreign policy of S is simple: put 'disorder of T with America. The same ones, it appears, applies to the economic policy as well. Friday, the dollar fell abruptly against the euro. It was foreseeable, since from top to bottom yaw followed comments of Alan Greenspan who - by its enigmatic own standards - were nonambiguous.

It seems persuasive that, given the size of the adverse balance dese payments of the USA, an appetite decreased to be added to balances of the dollar must occur with some, of point Greenspan indicated. It was hardly an original report/ratio for the President of federal reservation but synchronization was interesting. It came the day before from a meeting of G20 - a conclave of the developed countries and in the process of development - to Berlin to which the recent fall in the dollar was a topic of topicality.

Moreover, it came during three days after John Snow, the Minister for Finance of the USA, cool water poured on the idea that the world the 'central banks of S could meet to adopt the dollar 'falls of S. the history of efforts to impose evaluations not intended for the sale on the currencies is as well as possible unfruitful and squared , he said to London.

Alarmed

Europe received the message. The d�cisionnaires of the zone euros develop more and more alarmed about the fall in value of the dollar, since he threatens to block with far exports - one field from the growth of the single zone of currency from 12 nations. They would not more like anything than for patauger in the foreign currencies in.liaison.with the EDF and the central banks Asia to put a floor under banknote, but they know that Washington does not have any interest for such a movement.

Joaquin Almunia, Europe 'police chief monetary of businesses of S, said last week: Plus the euro goes up, plus the voices will start to require the intervention. It must be a coordinated effort but it seems that our friends through the Atlantic Ocean aren 't interested.

That adds with the things to the top rather well. There are two reasons for which the administration of Bush is not laid out to play the ball with Europeans. First is that he sees a dollar lower as inevitable since the adverse balance dese payments of the USA functions with $50bn-plus per month. A lower dollar carries out exports of the cheaper USA and imports expensive.

According to this interpretation, the Americans curve now simply with the inevitable one. Stephen Lewis, of the values of monument, known as that the markets finally lost patience with the laxism of Washington towards the trade and the twin budget deficits, pumped upwards by the cheap money and of the reductions of the taxes. V�rit� is that tax and monetary excesses the USA, which were essential to maintain the economy total with flood these last years, are tolerated any more on the markets of foreign currencies only, it said. Status quo is not an option. The only question is how the pain of the adjustment will be distributed.

The second reason is that the administration of Bush neither forgot nor lenient France and Germany for the position which they adopted above Iraq. Should Jacques Chirac and Gerhard Schroder weren 't interested to help the USA to reverse Saddam, and now time of refunding him 'of S. If the European economies suffer because of the weak dollar, why the USA worry? What 's occurring on the exchange markets is simply American unilateralism under a different appearance.

In the short run, therefore, the dollar resembles a bet with one way. The analysts of city speak already about him striking $1.35 against the euro, and given the tendency of the financial markets to the overshoot, nobody would be which astonished if it fell to $1.40 during the months to come. A stringer and decreases gently - is which what snow tests with the smoothness - would do little damage to the economy of the USA, but it would strike Europe hard.

This could seem perverse there, given all agitation was when the euro fell against the dollar right after its launching. Then, however, the problem was one of credibility for a currency of beginner because the weak impact of one euro was to amplify the request of the European goods. With one euro strong, there will be an direct impact on the European exporters. Since the last figures prove that Germany and France both developed by only 0.1% in the third quarters, a considerable reduction in exports could completely easily push greater economies of the zone euros 'of S again in the recession.

Growth forecasts for the euro areas - already modest - are likely to be reduced above the next months, and of the budget deficits are likely to become larger. A fresh reduction could prove the knell of dead of stability and the pact of growth, which would not be any bad thing, and higher unemployment rate would intensify resistance among workmen to the structural reform of the economies of the zone euros.

Washington can have another reason - independently to obtain its clean support - to make it possible to Europeans to suffer. The USA are desperate so that the Chinese revalues the yuan, but up to now completely did not obtain Beijing to agree to give up its ankle dollar. The Chinese, for policy as well as of the economic reasons, are determined to resist the American pressure.

Europe - the French, in particular - have the influence in China. As a remarkable analyst last week, China was never censured by the Safety advice of the United Nations - even above the massacre in the Tiananmen Place - because Paris always put such movements. France, thus the theory disappears, could have more success by persuading the Chinese to revalue than the Americans had.

It must recognize, however, that you would be in desperate straits to find an analyst who believes snow is capable of this level of the sophistication. After his execution in London last week, one indicated: I would sell the currency of any country of which he was the Minister for Finance. Probabilit� is that even if the Americans were to employ Europeans like procuration, the Chinese always resisted. Certainly, all the obviousness is that China 'the central bank of S intervenes always aggressively to maintain its currency stable. Without this action, the dollar 'falls of S in recent days would have been much faster.

To speak the dollar is to the bottom rather easy, but the strategy depends on a descent without clash which amplifies the growth of the USA without frightening in addition to investors of overseas who place the twin deficits. If this to transform itself into disordered rout then there would be inevitably a overflow in other markets and the true economy.

Washington, in other words, is based on a landing carefully for the dollar. The history shows, however, which there is a possibility better than equal of this end of process in a complete crisis, as it made in the middle of the Eighties, when the weakness of the dollar led to the accident of stockmarket of 1987. And this, naturally, was at one time when G7 acted in concert. As Lewis said, the crisis could be started by an apparently minor event, as when the Nigerians precipitated the race on book in 1976 by the change in dollars.

The USA are happy to act independently for now, since it is the equivalent of forex fast push in Baghdad. The life is likely to obtain later harder - and when it makes, the multilateralism will have its attractions.