The council member of the European Central Bank, Jens Weidmann stated that Euro is not really much overvalued at the current moment and the Governments should not be trying to weaken the same as doing so, may have bad effects in the overall economy of this region. Weidmann stated that the latest indicators, by no way, denote that there is any sort of major overvaluation of Euro despite the recent appreciation that the shared currency have experienced. He commented that the politicians should be holding on to the established division of labor. Weidmann, incidentally, is the head of the Germany’s Bundesbank and he added that if an exchange rate policy for weakening the Euro specifically is undertaken, the same will ultimately lead towards higher inflation in the region.
Incidentally, the President of France, Francois Hollande, on last week asked the Government leaders of several European countries for focusing on increasing value of Euro and taking necessary steps to lower the current growth of this shared currency. The proposal was almost immediately rejected by Angela Merkel, the German Chancellor. Incidentally, the Group of Seven nations are thinking of issuing a statement announcing that they won’t indulge in any sort of exchange rates while determining the fiscal policy. Many economists feel that the world is nearing towards a currency war and this statement, if is actually made, may make the situation better.
According to Weidmann, previous incidents suggest that such manipulations don’t act on the longer run and actually, things take an opposite turn altogether. If most of the countries indulge into an attempt of depressing their respective currencies, a depreciation competition will emerge, producing losers on the long run.
Thanks to Weidmann’s comments, Euro experienced a surge of half a cent today and is currently at $1.3428. Since last July, it has increased by 11% on a trade weighted basis. These high gains are currently hurting the Euro area exports. The sovereign debt crisis is also showing signs of abating.
Many economists feel that monetary policies are often influenced by the local politics, which should not be the case in a realistic scenario. Incidentally, the Japanese Prime Minister Shinzo Abe has called for an aggressive monetary policy and the same has raised concerns overseas that the Government is trying to weaken the Yen deliberately. However, the Japanese Government has denied the same.