The U.S. dollar burst through a symbolic eight-franc barrier today, continuing an apparently inexorable rise that has boosted the spending power of American tourists in Europe but caused serious worries for France's Socialist government.
Breaking all records, the U.S. currency soared to 8.0240 French francs on foreign exchange markets in Paris--more than twice its value five years ago. The dollar also gained against most other European currencies, reaching its highest value against the once-mighty West German mark in nearly eight years.
The dollar reached 2.6675 marks at midday. In Milan, the dollar closed at a record 1,578.55 lire, while in Brussels, the dollar reached 53.555 Belgian francs, compared with last week's 53.225. In London, the dollar closed at .6602 pounds, up from .6575 Friday.
The rise in the value of the dollar, which has been much more dramatic than most financial experts thought possible just a few months ago, jeopardizes the chances of success of an austerity program adopted by the French government last March. It also creates problems for other West European countries that face higher import bills for such items as oil even though their exports are theoretically more competitive than American products.
Concern about the dollar's strength is deepest in France, where it has been blamed by President Francois Mitterrand as a factor delaying economic recovery. French government spokesman Max Gallo insisted today, however, that the U.S. administration's inability or unwillingness to stabilize the dollar was creating problems for other economies as well.
There is some evidence to support this view. In an editorial today, the London Times described the U.S. currency as "grossly overvalued" while West Germany's Frankfurter Allgemeine Zeitung said the rise in the dollar was having a "sobering" effect on the West German stock market.
The latest surge in the dollar was triggered by expectations of a new increase in U.S. interest rates to control growth in the U.S. money supply. This has the effect of attracting capital from Western Europe, increasing pressure on banks this side of the Atlantic to keep their interest rates high, too.
Some left-wing French politicians have formulated a "conspiracy" theory according to which the huge U.S. budget deficits are being paid for directly by Europe and the Third World.
The American counterargument is that capital is sent to the United States as a safe political haven at a time of threatened instability in Europe over the installation of new U.S. medium-range nuclear missiles and in the Middle East. Senior U.S. officials also maintain that long-term shifts in exchange rates are primarily dependent on inflation rate differentials.
The rise in interest rates is likely to increase European skepticism about U.S. commitments given at the economic summit of leading industrialized nations at Williamsburg in May. The summit ended with a declaration describing interest rates as "too high" and promising to bring them down.
Accusing the United States of reneging on promises made at Williamsburg, French Finance Minister Jacques Delors called today for a joint European effort to make the Americans "see reason." He said the fact that the mark also was weak showed that this was "not just a French problem but a European one."
"How can the Americans appeal to the solidarity of their allies in the political and diplomatic arena when they plunge Europe into an even greater crisis?" Delors said during a radio interview.
Finance Ministry officials estimate that every 10 cent rise in the dollar's value against the franc adds $250 million to France's annual import bill. This automatically makes it more difficult for France to attain its objective of halving its $12.2 billion trade deficit this year and seriously reducing its 10 percent inflation rate.
The soaring U.S. currency also increases France's debt burden since most of its obligations are in dollars while its credits are in francs.
The influential Paris newspaper Le Monde said today that, now that the psychological eight-franc barrier had been breached, the French government might find it easier to gain public acceptance for its unpopular austerity program.