[GJM] why the Euro is rising [CITS Capital & Debt Watch alert]

[W. Curtiss Priest]

Dear money-interest folk,

Several years ago I wanted "out of the US dollar" and
a colleague commended the Euro as he travels there and
did not sense a debt mania as here.

That was when 1 Euro == 1 US dollar.  Now the Euro is
up 36%.

I hesitated about the Euro because I had various notions
about the EU countries being too generous to workers, 
Germany's growth problems, immigrant labor issues, etc.

But, today Michael Heise, Chief Economist at Allianz
and the Dresdner Bank in Germany, kindly informs us
about "Europe's Comeback" (article below).

And, given the performance of the Euro, I think his
story is to be believed.

WCP,
Editor, CITS Capital & Debt Watch

["fair use," "teachable moment," "archival," Section 107(a), 1976
Copyright Act and 1998 Digital Millennium Act]

MICHAEL HEISE

Europe's comeback

By Michael Heise  |  June 6, 2007
Boston Globe, p. A15

FRANKFURT

FOR YEARS, Americans have been hearing about economic stagnation in
Europe, as well as stubbornly high unemployment, inflexible labor
markets, and a deep-rooted aversion to reform.

The truth is that Europe is back and very much so. The European Union
has expanded over the past three years, bringing nations on its
Eastern and Southern fringe into the European mainstream.

The EU expansion has spurred on the 15 oldest members, including the
nine largest economies at Europe's core, to revamp and reshape their
economies to meet the challenges of the global marketplace.

Consider these facts: EU-wide growth is forecast to reach 2.7 percent
this year, above US levels. Even Germany, long considered moribund,
grew at 3.6 percent in the first quarter, proving that a high-wage
economy can succeed in today's global markets. Meanwhile, unemployment
in Europe continues to decline, to below 7 percent next year.

Productivity growth, long Europe's Achilles' heel, was slightly higher
than in the United States last year. It is Sweden, once a bastion of
Euro-socialist inefficiency, that is now the western continent's
leader. It saw its gross domestic product expand 4.4 percent last
year, its fastest growth rate since 1999 and considerably faster than
the US economy. At the same time, it is running a healthy fiscal
surplus.

In years past, European policymakers were bitter about the steady
drumbeat of criticism from the across the Atlantic, but they must now
realize that much of it was well-deserved. Indeed, Europe suffered
from inertia, coasting on educational and industrial achievements of
the past, and living off its accumulated wealth. This mindset is now
largely a thing of the past.

Any doubters of Europe's comeback should consider one quintessentially
American statistic that powerfully underscores the improved outlook.
According to Thomson Financial, Europe's equity market capitalization
has now eclipsed that of the United States. Europe's 24 stock markets,
including Russia and emerging Europe, now have market cap of $15.72
trillion, a bit higher than the $15.64 trillion market value of the
United States. That underscores the sentiment and expectations of
investors worldwide about Europe's economic potential and future
prospects.

What explains the shift and the re-dynamization of Europe? Two points
were crucial. First, Europe learned to learn from the United States.
Gradual deregulation, greater openness, support for entrepreneurship,
moves to stimulate innovation and many of the other policies that have
benefited Europe since the start of the decade have been selective
imports of the US economic model.

Second, Europe at long last embarked on an effort to achieve success
in the global knowledge economy -- a challenge Europe very much shares
with the United States.

The so-called Lisbon Agenda, launched by the European Council in 2000,
committed Europe's leaders to boosting investment in research and
development, slashing red tape, and knocking down bureaucratic hurdles
to launching businesses as well as shoring up the continent's strained
social security systems. The main idea is to provide more and better
jobs as well as greater social balance. The Lisbon Agenda is finally
starting to bear fruit.

But while the world has become a competitive marketplace, the revival
of Western Europe is by no means a threat to the United States. On the
contrary, achieving strong, sustainable economic growth in Europe has
been a major goal of Washington's international economic agenda.

The 27 nations that make up the European Union, plus several that have
chosen not to join but remain closely associated with it, are not only
a major market for US exports and the main source of overseas profits
for US companies. They are also democratic nations with open, free
enterprise-oriented systems in a world where liberal democracy is once
more on the defensive.

This only underscores the way in which the economies of Europe and the
United States are closely intertwined. It also points to the creative
potential to push each other to higher levels of performance.

At this week's summit of theGroup of Eight industrial nations in
Germany, the United States may find some things worth learning from
Europe's nascent economic success. For example, Europe's
future-oriented Lisbon Agenda includes both social and environmental
sustainability as a key component. Countries such as Sweden and the
Netherlands are achieving economic growth without sacrificing their
social safety nets.

With concern about global warming and other environmental issues
moving to the top of the international agenda, Europe's efforts in
this area could be a template for action on the other side of the
Atlantic. Of course, while each country can learn from its peers, it
must decide on its own road to prosperity.

Michael Heise is chief economist at Allianz and Dresdner Bank in
Germany.