Europe urges U.S. to slash its deficit

Globe and Mail reports that the dollar's most recent slide, which began after U.S. President George W. Bush's re-election last week, has sent economic shock waves from Europe to Asia as investors fret about the global fallout from record U.S. trade and budget deficits:

The euro briefly flirted with the psychological threshold of $1.30 (U.S.) Monday, before European officials began talking down the dollar. The Canadian dollar, in turn, briefly topped 84 cents, before ending the day at 83.75 cents.
The major worry in Europe is that a weaker dollar — and conversely, a stronger euro — will make the region's exports more expensive and undermine an already shaky economic recovery.
Breaking weeks of silence, European Central Bank president Jean-Claude Trichet said Monday that his patience is wearing thin. “The recent moves, which tend to be brutal on the exchange markets between the euro and the U.S dollar, are not welcome from the standpoint of the ECB,” Mr. Trichet said after a meeting of central bankers in Basel, Switzerland. He urged the United States to take steps to reduce its massive current account deficit as a way of relieving the downward pressure on the dollar. The swelling current account deficit, which includes both trade and capital flows, is the largest in U.S. history — $650-billion a year, or a hefty 5.7 per cent of gross domestic product.
A weaker dollar harms European companies — including drug makers, car makers financial institutions — by making their products less competitive in the United States and depressing profits from their U.S. operations. The impact isn't all negative. The higher euro keeps inflation at bay by tempering the high cost of oil and other critical imports.
In the United States, the lower dollar has the opposite effect. It raises the cost of many imports, while making its manufactured goods more competitive.