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Euro's weakness feeds robust Germany's concerns

The euro's slide towards the symbolic level of parity with the dollar is more a source of concern than optimism in Europe's export engine, Germany, analysts say.

[BERLIN] The euro's slide towards the symbolic level of parity with the dollar is more a source of concern than optimism in Europe's export engine, Germany, analysts say.

The country's visceral attachment to a strong euro likely stems from its post-war prosperity - and pride - having been built on the past foundations of the rock solid Deutsche mark.

Even Germany's vital export sector disapproves of a weak European currency.

Judging structural reforms to be the sole driver of a country's competitiveness, Germany eyes the policies of the European Central Bank (ECB) to kickstart the eurozone's moribund economy with scepticism, analysts say.

For Europe's top economy, near-zero interest rates and mass injections of liquidity by the Frankfurt-based central bank, at best, do little or nothing to help, and, at worst, could prove harmful to global financial stability.

"Are the ECB's bankers in the process of breaking our currency?" the Bild mass daily asked when the bank announced plans in late January to buy more than one trillion euros worth of bonds.

The move sent the euro sliding against the dollar, triggering a drop in the price of exports for the 19 countries that share the single currency, and in turn providing an expected boost for production and jobs.

But German exporters are unhappy.

"A weak euro is good news, only at first sight, for an exporting nation like Germany," Anton Boerner, head of the BGA exporters' federation, said on March 10, outlining its forecasts for 2015.

"Germany is also one of the biggest importers in the world," he said, adding that if raw material prices were not currently so low "the weak euro would make itself heavily felt on our imports' bills".

The argument that a weak euro provides a short-term boost to the world economy "doesn't carry a lot of weight in Germany where the economy is already very robust", Klaus-Juergen Gern, of the Kiel-based IfW economic institute, said.

"On the labour market, there are already problems to fill positions," he added.

Germany has shrugged off turbulence from the eurozone crisis and global tensions such as over Ukraine, and has continued to post overall growth in recent years. It enjoys one of the eurozone's lowest unemployment rates.

With record trade surpluses, Germany already faces pressure from international partners to iron out its imbalances and simply "doesn't need" a weak euro, Mr Gern said.

Labour market reforms passed a decade ago led to a low-wage policy which many believe has helped give Germany its competitive edge, along with its strength in producing items that tend to defy price fluctuations - top-end motor cars and sophisticated machine tools - mean the country is equipped to live with a strong euro.

For most Germans, however, the weak euro directly translates into an increase in the cost of petrol and more generally of dollar-denominated goods imported from outside the eurozone.

Falling oil prices have made a weaker euro more palatable for Germany by dampening the effect of the price increase on items the country buys from abroad.

"As soon as they (oil prices) go up again, one will surely hear that the weakness of the euro is not good for Germany," Mr Gern said.

Germany also frets that the economic boost resulting from a weaker euro will provide struggling eurozone countries with an excuse not to carry out the reforms which Berlin holds so dear and argues are necessary.

Asked recently about the depreciating euro, Finance Minister Wolfgang Schaeuble said that the ECB's "challenge" was to deal with the divergent situations in member states.

Mr Schaeuble noted that ECB chief Mario Draghi has frequently urged governments to implement structural reforms, step up competitiveness to ensure lasting growth and pursue a solid budgetary policy.

It was precisely those steps, the German minister insisted, which "cannot be replaced by the monetary policy of the ECB".


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