Euro may be too weak for Germany but too strong for others

Fri Feb 3, 2017 7:36am EST
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By Jamie McGeever

LONDON (Reuters) - In an attack on Germany, U.S. President Donald Trump's top trade adviser said the euro was "grossly undervalued", a charge which may ring true for the German economy but not for the 19-member currency zone as a whole.

The adviser, Peter Navarro, said Germany, the euro zone's economic powerhouse, was exploiting the euro exchange rate for trade purposes, a charge rejected by German Chancellor Angela Merkel.

There's no clear method of establishing how much a currency is under or overvalued but many economists think that some economic measures show the German economy could easily cope with a stronger euro. It hit a 14-year low of $1.0339 EURO= last month.

Even German Finance Minister Wolfgang Schaeuble said on Friday the single currency could be a bit stronger for Germany.

But he agreed with economists that this would make life hard for other euro members. For weaker economies such as Greece, economic measures show the exchange rate is too strong, and for the whole currency area it is only moderately underpriced.

"The euro is below most estimates of fair value. And German exporters appear to be benefiting more than most," said Jennifer McKeown at Capital Economics.

The White House is concerned about the exchange rate because German companies sell cars, vehicle parts, pharmaceuticals, planes and helicopters around the world, competing with American, as well as other European, manufacturers.

Exports account for nearly half Germany's economic output, with 9.5 percent going to the United States and around 35 percent to euro zone countries.   Continued...

A woman holds a 20 and 50 Euro bank notes in front of an ATM in this illustration picture taken in Bern January 16, 2015.   REUTERS/Thomas Hodel