Wall Street Journal
April 28, 2011
Greece has plenty to worry about: hard-hitting austerity measures designed to get the nation's finances back on track, a shrinking economy, and the real risk that it can't pay its debts.
Whether it needs to add a strong euro to that list is less clear.
The currency, used by 17 countries including Greece, is flying high, reaching a 16-month high of $1.4882 on Thursday, as investors flee the greenback in the expectation that U.S. interest rates will remain super-low for a long time, while others, including those of the euro area, push higher. Most impressively, the euro has risen nearly 14% against the dollar this year, despite the financial problems of Greece, Ireland and Portugal, all of which have had to accept international bailouts.
The shift in the euro is bad news for the euro zone's exporters because it makes their goods abruptly more expensive abroad. If the current rumble in the dollar becomes an unnervingly rapid rout—a possibility that troubles many analysts and investors—this could slam all of the euro's members. It would be a particular threat to the bloc's most financially stressed members because they would find it even harder to use exports to expand their economies and crawl out from under their mountains ofdebt.
"If the slide in the dollar spins out of control, it could be dangerous," said Kit Juckes, head of currencies research at French bank Société Générale in London. "If the euro rises to $1.50 or $1.60, that's bad for Greece. It could cause the euro zone genuine economic pain."