Tuesday, April 29, 2008

Clouds Over Europe

Clouds Over Europe

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The euro's power must not delude us: the economies that have adopted this single currency are almost all in the process of slowing down. That is the case, notably, in Ireland, Germany, Spain, Italy and, of course, France.

That the historically elevated level of the euro against the dollar is beginning to pose problems, even to German exporters, is obvious. Nonetheless, it's not the currency that is the source of all evils: Great Britain's economic problems prove that.

The bursting of the real estate bubble in Spain and Ireland, a consequence of the sub-prime crisis in Great Britain, the slowdown of global growth and the stagnation of German domestic demand ... the causes of this European slump are multiple, which, obviously, makes the Union's economic navigation more complicated.

In this unsure situation, three things may be considered certain: 1) The euro will remain at a high level, not only because of the European Central Bank's policy, but also because of the euro's growing role as a reserve currency. 2) Banks will be more careful than they were before about extending credit. 3) Because of the resumption of inflation and the tightening of credit, consumption will, at best, stagnate.

Not everything is completely black, however. The Chinese and Indian locomotives continue to pull global growth, and, closer to home, the countries of central Europe, notably Russia, Poland, the Czech Republic and Slovenia, are still demonstrating real dynamism. Without mentioning the Gulf countries submerged under their oil and gas receipts.

Consequently, the only worthwhile solution is achieved through innovation and exports; by going to look for growth where it's happening, by proposing products that emerging countries now have the means to buy without yet having the savoir-faire to conceive and produce them.

In his speech, Nicolas Sarkozy insisted on purchasing power. We understand; it's one of the French people's principal - legitimate - concerns. But if he wants France to remain a great country by the end of his five-year term, he'll have to also take up sales know-how.

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