Feb 6, 2017

Draghi vs. Trump: the latest front in currency wars

Michael Probst/AP

European Central Bank President Mario Draghi took exception Monday with Trump Administration accusations that the Euro is undervalued and that this has propped up Germany's export sector to the detriment of the U.S.

Draghi's view: because Germany doesn't have the authority to manipulate the value of the Euro, the accusations of the Trump Administration are baseless. The real reason for Germany's trade surplus is that it is more "competitive" than other economies.

Trump's view: If Germany had its own currency, the value of that currency would be much higher than the Euro to reflect its higher productivity. Germany is the beneficiary of the lack of competitiveness in places like Italy and Spain, and just because the German government isn't directly responsible for the Euro being too cheap, that doesn't mean that the U.S. worker isn't being harmed by its low value.

Our thought bubble: Germany benefitting from a cheap Euro is just another reason for the Trump Administration to dislike the European Union, and to support events that might help end the currency union.

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