When the euro tumbled in value in the months after it was launched, the Cassandras and eurosceptics who seem to inhabit corners of the City, Westminster and Fleet Street fell upon this as evidence that the euro was a fractured currency, doomed to failure. Now the dollar is crumbling and the euro is emerging as a veritable rock, there is none of the same gloating. It seems that while a weak euro meant a weak Europe, a weak dollar means a strong America and, of course, a weak Europe. At least the euro's strength seems to have killed off any suggestions that it is structurally doomed.
How the weak dollar squares with the apparent strength of the US economy is something that puzzles the vast majority of us. The momentum theory of economic forecasting comes into play here. This says that when the market is rising, most "experts" think it will rise further, and when it is falling, most say it will fall further. So while many economists thought the dollar was fairly valued at $1.10 to the euro, the majority now think it is overvalued at $1.20 to the euro. I saw one leading economist saying on Friday that the dollar will fall another 20 per cent - taking it perilously close to $1.50 to the euro. I am reluctant to call this bollocks, but how does this tally with the fact that the US economy is growing at a faster rate than at any time in the past two decades?
There is something strangely lopsided about the US economy and this is rather worrying for us. The growth being shown in the US appears to be on the back of heavy spending on defence and lots of shopping by the good old American consumer. While the xenophobic procurement policies of the Federal Government (something Bush shares with his staunch enemy, France) mean that the defence spending is largely held within the US, American consumers are not so patriotic. Even if they were, they wouldn't be able to live up to their aspirations since much of what is sold in US malls (from Gap T-shirts to Finding Nemo dolls to playing cards featuring Condoleezza Rice) is made in China or other low-cost countries. So the consumer boom in America means higher imports, which is one of the reasons why the greenback is looking so sickly.
The great internationalist, George W, does not want to allow Americans freedom of choice in their purchasing decisions. He wants Americans to buy American and he will stick up tariff barriers wherever he fancies, like Western pioneers circling the wagons to defend against the red indians.
His first barrier, on steel, is about to be torn down. On Friday, the World Trade Organisation was ready to rubber-stamp a ruling that the steel tariffs Bush erected last year were illegal, so allowing the European Union to retaliate. However, the US talked the WTO into a stay of execution until next Monday. By then, I predict, this barrier will be no more.
However, it will be replaced by others: against Chinese bras and pyjamas; against cheap TVs; against pipe-fittings. Fence after fence. Stockade after stockade. But then it will be Alamo after Alamo - because you can be sure that the free trade agreements the US signed itself will be used to smash all these barriers.
But the Bush administration appears to have learned a trick or two from one of its great supporters, Rupert Murdoch. What the Digger has found over the years is that regulators take ages to rectify wrongs, while you get the advantage of the anti-competitive practice in the meantime. So long as you strike a deal with the authorities and withdraw gracefully, the penalty brought against you is far less than the benefit you have gained.
Ironically, there is only one place where this does not work any more: Europe. Not that the European Commission has suddenly turned itself into the regulatory equivalent of Speedy Gonzales. No. Brussels has learned that heavy penalties against the guilty are the only way of deterring bad behaviour.
Of course, the weak dollar will have more impact on the US trade balance than anything else. Or at least it would have if there hadn't been a deal to link the Chinese yuan to the dollar. This means that China, the world's fastest-growing exporter, will end up with an undervalued currency. Europe, which needs the most help, will end up suffering from the strong euro. And the US? If it continues down its protectionist route, it will make things worse for itself and the rest of the world.Reuse content