Sarkozy fears 'economic war’

Sarkozy fears 'economic war’ as dollar slides

By Ambrose Evans-Pritchard, Telegraph.uk | 8 November 2007

Tough talking: President Nicolas Sarkozy of France before Congress in Washington yesterday as he warns US cannot allow currency to collapse as Europe suffers from euro's rise.

The French president, Nicolas Sarkozy, has warned the United States Congress that the US risks triggering "economic war" if it attempts to devalue its way out of trouble by allowing a relentless slide in the dollar.

Stephen Jen, an analyst at Morgan Stanley, said the dollar fall had indeed become alarming. "This has been driven so far by Middle Eastern and Asian central banks, but there is a risk that hedge funds will start to join in, and they can be very powerful," he said.

"The most dangerous threat is that the yen will snap back and destroy the 'carry trade' before anybody has a chance to unwind positions."

The stunning remarks by French president, Nicolas Sarkozy came as the greenback plunged to a record low of $1.4731 against the euro, causing a chorus of angry protests from industrial leaders in France and Italy. The dollar breached $2.10 against sterling for the first time since the early Thatcher years in 1981. On Wall Street the Dow tumbled 246.40 to 13,414.50. Mr Sarkozy spared no sensitivities as he launched into a full-blown attack on the Bush Administration. "The dollar cannot remain solely the problem of others. If we are not careful, monetary disarray could morph into economic war. We would all be its victims," he said. "Those who admire the nation that has built the world's greatest economy and has never ceased trying to persuade the world of the advantages of free trade expect her to be the first to promote fair exchange rates."

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