(AFP) – Mar 15, 2008
FRANKFURT (AFP) — The dollar's plunge has made the eurozone the world's biggest economy by one measure and has underscored shifts that are reorienting the 15-nation bloc towards Asia, Russia and oil-rich Gulf states, analysts say.
"With the euro now trading around 1.56 against the dollar, the size of its annual output (at market value) has exceeded that of the United States," US investment bank Goldman Sachs estimated last week.
"Brief as the development may prove to be, European policy makers will no doubt derive some pride" from the event, it said.
The single European currency has skipped from record to record amid fears the US economy is heading into recession at a time of national housing and financial crises.
Interest rates have been cut in the United States to spur business activity, while the European Central Bank (ECB) has kept lending rates steady owing to concern over eurozone inflation that hit a record of 3.3 percent last month.
Meanwhile, the economy of 320 million people -- which churns out 15 percent of global gross domestic product -- has slowed but shown a degree of resiliency to the US slump that few would have counted on just a few years ago.
Historically thrifty German consumers helped the national retail sector gain 2.7 percent in January, with the trend continuing in February according to the HDE sector association.
US retail sales fell by 0.6 percent in January as the celebrated US shopper bypassed malls in the face of higher unemployment and inflation and falling housing prices.
Talk of an economic decoupling of Europe from the United States has risen as a result, but policymakers and analysts are quick to point out that global economies are interlinked, even though they move through separate cyclical phases.
"We are in a largely interdependent world so anything that happens in Europe has an influence on the US, I am happy to to tell you, and anything that happens in the US has an influence in Europe," ECB president Jean-Claude Trichet said early this month.
He nonetheless added that "we have our own economies, they are not the same. "We are in different universes."
The eurozone universe has broken free of some rigid structures that hobbled it in the past, Bank of America economist Holger Schmieding told AFP.
Economic growth, which is slowing but still far from recession "has mostly to do with internal reforms, plus recently help from strong export demand from East Asia, eastern Europe and the oil countries," Schmieding said.
"Few regions have gained more from globalization than the eurozone," he wrote last week in the Wall Street Journal Europe.
"With their focus on quality machinery, infrastructure equipment, cars and airplanes, West European companies offer a product mix well-suited to the investment boom in East Asia, the oil-exporting countries and parts of East-Central Europe."
Marco Kramer, co-head of global economics at UniCredit Markets, said eurozone companies were moving "towards the countries that will be increasingly important in the future because they're raw material exporting countries like Ukraine or Kazakhstan or Russia."
Years ago, doubters said the eurozone would have problems aligning economies of countries as disparate as Germany, Greece, Italy, the Netherlands or Spain.
But Kramer said the bloc's architects sought "converging economic trends and in this respect the ECB has been successful."
Despite economic tensions in Italy, "for the moment, the eurozone and the ECB can be proud of what they have achieved in recent years," he said.
Schmieding said that "apart from the housing market correction in Spain and Ireland, the eurozone has no major domestic problem," while Jennifer McKeown at Capital Economics noted: "The eurozone hasn't built up the same kinds of imbalances that we've seen in the US and the UK, too."
She summed up the eurozone experiment by saying: "So far, so good in that everything's still together. It's not falling apart as some people had feared."
More eastern European countries are in fact due to join in the coming years.
Schmieding said it was "basically good news for the United States that the rest of the world is a little less dependent on the US.
"It will give the US a better chance to export its way out of domestic trouble."
Economic questions still facing the eurozone included whether politicians would pursue labour market reforms that have cut unemployment and raised profits while stirring union demands for higher wages, he added.
"Whether we actually get further reforms is a highly questionable issue at the moment," Schmieding said.
European leaders have also called for a political figure to represent the zone alongside Trichet.
Kramer said: "For the moment, there is just the ECB and the European Commission, and I am not sure they are working on the same issues."
The eurozone needed to be "better positioned in the international political landscape," he added.
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