Simon Johnson writes: Intensified fears over government debt in the eurozone are pushing the euro weaker against the dollar. The G7 achieved nothing over the weekend, the IMF is stuck on the sidelines, and the Europeans are sitting on their hands at least until a summit on Thursday. There is a lot of trading time between now and then -- and most of it is likely to be spent weakening the euro further.
The UK also faces serious pressure, and there is no telling where this goes next around the world -- or how it gets there...
The German authorities are happy to have the euro depreciate this far, and probably would not mind if it moves another 10-20 percent. They are convinced that they must -- in fact, should -- export their way back to acceptable growth levels...
Germany and France have no objection to euro depreciation -- they are confident that the European Central Bank can prevent this from turning into inflation.
It's the US that should be concerned about the effect on its exports (and imports; goods from the eurozone become cheaper as the euro falls in value) if the euro moves too far and too fast...
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Comment: The US needs a "strong" dollar to maintain its position as debtor, but a "weak" dollar is needed to pull the US out of the recession. Indeed, it is mainly only exports where an expansion can from. A temporary dollar strength will make matters only much worse for the time to come. For those who still invested in dollar bonds, a window of opportunity (maybe the last one) opens to get rid of the junk.
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