France and Germany fall out over euro
The French president, Nicolas Sarkozy, and the German chancellor, Angela Merkel, pledged to breathe new life into their traditional special relationship, says Paul Betts in the FT. But that relationship now seems to be threatened by their dispute over independence of the European Central Bank (ECB) and exchange-rate management. Sarkozy argues that the strong euro (it hit a record high against the dollar this week) undermines growth and hurts exporters. Germany disagrees, arguing that a strong currency benefits the economy by making energy (priced in dollars) cheaper, and by forcing exporters to focus on cutting costs and improving efficiency. It also gives Europe a chance to make acquisitions in dollar-based economies. Merkel also insists that ECB independence is essential in fighting inflation.
