The Euro is expected to reach parity with the US Dollar before the end of 2002, according to Hans Werner Sinn, the President of the German economics institute, IFO. This situation could cause a slow-down in the Euro zone.
Nevertheless, Hans Werner Sinn considers that this will be positive in theory, but negative in practice: “The parity of the Euro with the dollar is desirable and goes in accordance with the basic philosophy of the single currency. However, given the importance of the European economy on its exports, the increase in the exchange rate will, this year, along with the uncertainty surrounding the price of oil, be a negative element for growth”.
Hans Werner Sinn considers that the long-term danger is the large trade deficit of the USA is dangerous for the world economy, although it favours the investors in the USA and keeps interest rates low. “I do not know for how much longer the world can afford to finance the US trade deficit,” he declared.
The IFO forecasts a growth rate of between 0.6 and 0.9% this year, lower than the EU average. Herr Sinn blames the rigidity of the German work market for this.
John ASHTEAD PRAVDA.Ru LONDON UNITED KINGDOM