Euro Threatened with 2007 Meltdown, as French Economy Slumps

The resurgent strength of the euro in the international currency market could, ironically, be the agent of its demise in 2007. Problems caused by the lack of fiscal maneuverability that the "one-currency-fits-all" approach imposes saw Italy considering a return to the lira just last year. But in October, when French car manufacturing output dropped to 14 percent for the year, with the country's monthly trade deficit running at a staggering $2.7 billion, and economic growth shuddering to a standstill, it left one of the EU's biggest guns warning of possible withdrawal -- a move which would signal the end for European monetary union.

French Trade Minister Christine Lagarde has recently criticized the German-based European Central Bank (ECB), which, by raising interest rates six times in a year to 3.5 percent, has been instrumental in pushing up the value of the euro. During 2006, the euro rose 11 percent against the U.S. dollar and most Asian currencies, and a staggering 20 percent against the yen. Complaining about only selling one Airbus, and no satellites or ships at all, during the year, Lagarde pointedly told the ECB it needed to stop worrying about inflation and start "thinking about growth." French Premier Dominique de Villepin even called for limits on the power of the ECB, espousing the need to reassert national control over the economy. "We must clarify matters in exchange rate policy, which means taking back our sovereignty," he said. A clause in the EU's Maastricht Treaty (111-4) could allow them to do exactly that. The "get-out" clause allows EU states to set their own interest rates, effectively stripping the ECB of independent control.

The strength of French national ill-feeling over the ECB's handling of the euro was summed up by socialist candidate Ségolène Royal, who accused ECB President Jean-Claude Trichot of usurping democratic authority. "It's not for Mr. Trichot to dictate the future of our economies: it's a matter for our leaders chosen by the people. We must completely change the charter of the central bank," she said.