French and Italian Whine Still World Class

Jacques Chirac misanalyzes the roots of France's woeful economic performance and blasts the European Central bank for letting the Euro appreciate too much against the dollar. "We can't run our national monetary policies, and we've moved from a system of competitive devaluation to support our exports to a system of overvaluation of the currency," said Chirac, as reported by Bloomberg. So, the French President, who has been the most fervent cheerleader of the EU and of integrating the European economy as a competitive weight to the US, is now bitching about the loss of monetary autonomy. And if the irony isn't thick enough for you, he goes on to blast the European Commission for NOT prohibiting Hewlett-Packard from firing 5,900 workers in Europe (mostly in France I have to assume). Doubtless it does not occur to him that it is this very thing - such interventionary micro-management of business by the state (and the propensity of people like himself to call for such interventions) - that leads a Hewlett-Packard to not want to locate too many of its employees in Europe.

And he is joined by Silvio Berlusconi, who also believes that Italy's economic woes would magically disappear if only the Euro were competitively devalued. As I touched on in a previous post, Italy is sinking in the competitiveness rankings due to the same statist, hyper-regulatory, over-taxed economic model that afflicts France and Germany, but it is also losing the reins on basic law and order.

It is hardly earth-shattering that Old Europe continues to misdiagnose its economic ailments, but now we know what their leaders' view of economic health looks like - mercantilism. Even with what looks like some political de-bottlenecking in Germany, these statements can't give confidence to Euro holders. Only US weakness can support the Euro now. Any more reports that show the US economy's post-Katrina/Rita resilience, like yesterday's ISM Manufacturing Index, and Chirac and Berlusconi will get what they wished for. Analysts will be taking about a $1.15 Euro very soon and a $1.10 Euro will be the story of 2006. That means cheaper Burgundies and Tuscan reds for you and me folks.