The recent rise of the euro to its record high against the dollar since its introduction in 1999, while approaching the high of 1.45 achieved by the synthetic euro in 1995, has raised a number of serious concerns. Has the euro overshot? Is it sustainable at these levels? These questions will dominate discussions on exchange rates at the next Group of Seven industrialised nations meeting in Washington in a fortnight’s time.

The reality is that eurozone fundamentals have seldom compared so fa­vourably with those of the US. Europe em­erged from the global slowdown following the bursting of the information tech­nology bubble with healthier public finances, faster productivity growth and less dependence on falling household saving rates to sustain its economic expansion.