U.S. editorial excerpts -3-

NEW YORK, July 18 Kyodo

Selected editorial excerpts from the U.S. press:

THE 'STRONG' EURO (The Wall Street Journal, New York)

Europeans are fighting over exchange rates again, and the rift is instructive about national economic competitiveness. American mercantilists who want a devalued dollar might take note.

Almost since he took office two months ago, Nicolas Sarkozy has blamed the euro for La Grande Nation's economic troubles. Claiming that the single European currency is ''overvalued,'' the new French President said exchange rates and ''aggressive'' monetary policy should be used to spur growth.

His pushiness made Berlin uncomfortable enough to push back -- much to the benefit of Europe, which has little to gain from Sarkozy-style economic interventionism.

But Mr. Sarkozy's little crusade also misses the economic point. Leaving aside the bad repercussions for investor confidence and inflation of weakening the ECB's independence, monetary policy is neither too tight nor to blame for dragging down the Euro-economy. GDP is forecast to expand by about 2.7% this year, a breakneck speed by European standards. At the same time, inflation remains stubbornly close to the ECB's comfort zone of 2%. An interest rate of 4% is hardly signaling tight monetary policy.

True, the euro has rallied spectacularly this year, particularly against the dollar. The single currency is up about 6% against the greenback since December alone. But so is the British pound, which strengthened about 4% vis-a-vis the dollar during the same period.

France's worsening trade deficit, reaching 1.7% of GDP last year, seems to underpin Mr. Sarkozy's exchange-rate concerns. For a country that practically invented mercantilism, falling exports hurt French national pride. But an ''economic patriotism'' view of the world hurts France's ability to think clearly. The country's export performance compared to its euro-zone peers suggests that home-grown problems are far more significant.

France is losing ground against neighbors (especially Germany) that have passed economic reforms, coupled with corporate restructuring and labor flexibility. That's what makes their exporters competitive globally and the economy strong. French growth -- which in the past was broadly in line with the euro-area average -- was 0.7 percentage points below the single currency zone's 2.7% last year. France is also stuck with the highest unemployment rate (8.7%) among the 13 countries sharing the euro, according to Eurostat.

Innovation and outsourcing are keys developed countries need to make the most of in a globalized economy, and France is lagging in both. Only 33% of French enterprises are active in innovation, according to a Eurostat survey published in February. That's the lowest rate among the old European Union states. Unions have made it even more difficult than in other countries to move production sites outside national borders.

What might restore France's economic glory are the Mr. Sarkozy's supply-side reform proposals. Making overtime tax-free to end the 35-hour week, limiting union powers to shut down the economy during strikes, and reducing the size of government are some of his more promising ideas that Parliament has begun to discuss. For France's sake, and the world's, let's hope Mr. Sarkozy sticks to this domestic reform agenda and stays out of euro-zone monetary policy.

(July 18)

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