So here’s the good news. The overhyped threat of “currency wars” is off the table for the time being after G-7 officials said they won’t censure Japan over Prime Minister Shinzo Abe’s go-for-growth strategy built around looser credit policy and a weaker yen, reports MarketWatch.
The bad news is that, if a currency war does break out, it’s most likely to be between France and Germany.
French President François Hollande has set the stage, with a Gallic mix of pragmatism and panache, by admitting there’s little chance for France to meet its growth and budget-deficit targets this year.
At the same time, he’s made clear — in a move soundly rebuffed by the Berlin government, the European Central Bank and the Bundesbank — that the euro’s heady rise on the foreign exchanges needs to be brought under control.
The issues of growth and the exchange rate are linked. Germany is projected to exceed France’s economic growth in 2013 for what will be the seventh year out of the last eight, It ran a current-account surplus of 6% of gross domestic product last year against a deficit of 2% for France.
So the Germans can live with a euro above $1.30 (or maybe even $1.40) much easier than their western neighbors.
On the budgetary front, Jörg Asmussen, the former German finance ministry state secretary who is now Germany’s man on the ECB’s six-member executive board, fired a warning shot last week by calling on France to stick to its plan to bring the budget deficit down to 3% of GDP.
Read more of this report from MarketWatch.