Skip to main content

by Mish

Specifically, Peter Navarro, the head of Mr Trump’s National Trade Council, said euro was like an “implicit Deutsche Mark” and “grossly undervalued”.

German chancellor Angela Merkel responded Germany “will not influence the behaviour of the ECB”.

Let’s take a look at the claims and counter-claims to sort out the obvious lies.

Please consider Trump’s Top Trade Adviser Accuses Germany of Currency Exploitation.

Germany is using a “grossly undervalued” euro to “exploit” the US and its EU partners, Donald Trump’s top trade adviser has said in comments likely to trigger alarm in Europe’s largest economy.
At a meeting with pharmaceutical bosses on Tuesday, Mr Trump accused Japan and China of using monetary policy to pursue “devaluation” in the past to gain a trading advantage over the US.
“They play the money market, they play the devaluation market, while we sit here like a bunch of dummies,” Mr Trump said.
“A big obstacle to viewing TTIP as a bilateral deal is Germany, which continues to exploit other countries in the EU as well as the US with an ‘implicit Deutsche Mark’ that is grossly undervalued,” Mr Navarro said. “The German structural imbalance in trade with the rest of the EU and the US underscores the economic heterogeneity [diversity] within the EU — ergo, this is a multilateral deal in bilateral dress.”
Besides publicly supporting the British government in its negotiations with the EU over the terms of its exit, Mr Trump called the EU a vehicle for Germany, and Nato an obsolete alliance.
Mr Navarro, however, said he was not concerned about the possibility of a stronger dollar and its impact on US exports.

Merkel Rejects Navarro’s Claims

The BBC reports Merkel Rejects Trump Advisor Euro Claim.

Peter Navarro, the head of Mr Trump’s National Trade Council, told the Financial Times that the euro is a German currency in disguise.
But Mrs Merkel said Germany “has always called for the European Central Bank to pursue an independent policy”.
In response to Mr Navarro’s comments, Mrs Merkel said: “Germany is a country that has always called for the European Central Bank to pursue an independent policy, just as the Bundesbank did that before the euro existed.”
“Because of that we will not influence the behaviour of the ECB. And as a result, I cannot and do not want to change the situation as it is,” she added.

Merkel the Liar

Clearly Merkel is a liar. Her own finance Minister has on many occasions attempted to influence ECB policy.

For example, in September of 2016  Schaueble  stated “Even before the European Central Bank decided its policies of unusual monetary policy, which also led to the euro exchange rate falling significantly, I said that we will increase German export surplus.”

Not only did Schaueble blame the ECB, he also blasted its “unusual policy”.

For details, please see Germany’s Finance Minister Blames ECB For German Trade Surplus; Why the Eurozone Will Destruct.

In the above case, Schaueble is actually concerned the Euro is falling. Nonetheless, it is a lie to claim that “Germany is a country that has always called for the European Central Bank to pursue an independent policy” when her own finance minister consistently tries to influence the ECB.

Germany Trade Surplus with US

On one hand, Navarro accuses Germany of weakening its currency to boos exports. On the other hand Navarro is not concerned about the effect a strong dollar will have on US exports. You cannot have this both ways.

Moreover, I would like to see Navarro’s explanation as to why Germany had a trade surplus with the US even when it took 1.5 dollars to buy a euro.

Image placeholder title

In 2011, the Dollar traded in a range of 1.26 to 1.49 per Euro, with results as shown above. One can pick any year or any currency level and discover that Germany has a trade surplus with the US, regardless of currency level.

The Euro was announced in 1995 and launched in 1999. In that entire timeframe, there is not a single month in which Germany did not have a trade surplus with the US, regardless of the level of the euro!

Going back all the way to 1985, there was only one month in which Germany did not have a trade surplus with the US. Congratulations are in order for April of 1991.

Clearly there is something more in play than the strength or weakness of currency pairs.

Pot Calls Kettle Black

Navarro blames China, the ECB, Japan, and everyone else for “currency manipulation”.

He forgot to look in the mirror. Manipulation of interest rates and central bank asset purchases also influence currencies.

The US is at least a big a manipulator as any of the countries Navarro accuses.

Scroll to Continue


EU a Vehicle for Germany?

Trump called the EU a “vehicle for Germany”. That is an accurate statement. How can one deny it?

Peripheral Europe disintegrated under the Euro for benefit of Germany. Until recently, the ECB’s policy had been best described as “one size fits Germany”. And Germany still wants to dictate ECB policy.

To an extent, this is not Germany’s fault. The Euro was poorly designed and poorly implemented. Germany insisted all along it would not go into a transfer union.

Germany will pay a price, and a huge price, when this explodes sometime down the road.

Undervalued Yuan? Yen?

Trump and his team believe the Yen, the Euro, and the Yuan are all undervalued.

The irony in regards to yuan is that it might crash if China dared float the the currency. China is in fact desperately attempting to prop up the yuan to stop capital flight.

Is the Yen undervalued? Arguably it’s not given the inane policy of Japan over the years and the more recent policy of Abenomics.

Undervalued Euro?

Image placeholder title

Bloomberg reports Euro Is G-10’s Most Undervalued Currency by OECD Measure.

Really? What happens to Eurozone banks and the euro if the eurozone breaks up?

The euro might crash. That’s what. It all depends on how the eurozone breaks up and how governments respond.

If Italy decides to leave, and then pay back its target2 imbalance in lira, the entire European banking structure blows sky high. This is not an unlikely event.

And Trump is pushing the likelihood along nicely.

Origin of the Crisis

This all dates back to 1971 when Nixon closed the gold window, unleashing a torrent of speculative credit, while creating precisely the trade environment we are in today.

Governments could and did inflate at will, for the sole benefit of the banks, the politically connected, and the already wealthy.

Proponents of the “secular stagnation” thesis that blames a global saving glut are amazingly off base as to the cause of the stagnation and imbalances.


Part of the strength of the Dollar and weakness of the Euro reflects concerns mentioned above.

There is so much manipulation and interference by central banks everywhere, it is difficult to say precisely how this will all shake out.

However, I still expect a major currency crisis, and if so, gold stands to be the beneficiary.

Meanwhile, Trump’s trade policies are on the verge of starting a global trade war, exacerbating the currency problems he rails against.

My challenges in links 1 and 4 have gone unanswered. DeLong, Summers, Bernanke, and Krugman won’t answer because they have no answer.

Mike “Mish” Shedlock