Currency war is the next phase of global conflict, and Europe, the chief parasite, is defenceless, writes Ambrose Evans-Pritchard in the Daily Telegraph

Europe has been warned. Any use of monetary levers to hold down the euro exchange rate will be deemed a provocation by the Trump administration, leading political commentator Ambrose Evans-Pritchard has written in Britain's Daily Telegraph. 

Further cuts in interest rates to minus 0.5% or beyond will be scrutinised for currency manipulation. A revival of quantitative easing​ will be considered a devaluation policy in disguise, as indeed it is, since the money leaks out into global securities and depresses the euro.

Ambrose Evans-Pritchard

The eurozone is chief global parasite, Evans-Pritchard writes. It has been sucking demand out of the global economy with current account surpluses of €300bn to €400bn. China is a saint by comparison. This ‘free rider’ behaviour is the result of the euro structure and the austerity bias of the Stability Pact and German ideology amplified through currency union.

The rest of the world pays the price for euroland’s half-built experiment and its failure to stimulate, that is to say its failure to create a joint treasury with shared debt issuance that would make an investment revival possible in the depressed half of Europe.Mr Navarro has special twist on this: the warped mechanism of monetary union allows Germany to keep the implicit Deutsche Mark “grossly undervalued” and to lock in a beggar-thy-neighbour trade advantage over southern Europe.  Hence Germany’s chronic current account surplus of 8.5% of GDP.

Mr Trump’s White House has had enough of this and the battleground is over the currency. Democrats are singing from the same hymn sheet. Presidential candidate Elizabeth Warren has launched a campaign of “economic patriotism” with active currency management.

The Economic Policy Institute in Washington proposes buying the bonds of any country engaged in currency manipulation to neutralize the effect. The US Treasury is in charge of currency policy and can effectively order the Fed to support US foreign policy objectives.

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