Euro overshoot can spark stress bloc-wide again

LONDON: If the euro zone loses the global ‘currency war’, the price will be paid in growth and jobs and fresh tensions about the future of the bloc.
Whoever wins the ‘war’ eventually, few doubts the euro area has been routed in the latest monetary battles between countries printing and depressing home currencies in part to retain trade advantage in a growth-sapped world.
Japan’s plan to aggressively weaken the yen has been the most recent salvo. But that merely counters open-ended bond buying and dollar creation by the US Federal Reserve, pound printing in Britain or even Swiss intervention to cap the franc.
It leaves the European Central Bank (ECB) as the only operator of the “Big Four” reserve currencies still unable or unwilling to create new cash and put a lid on its exchange rate over time.
That fact was underlined last month by early paybacks on what had been the ECB’s proxy printing plan of cheap long-term loans to euro banks (or LTROs) – repayments which have lead to an untimely shrinkage of the ECB balance sheet as its economy shrinks, creeping short-term interest rates and a rising euro.
The euro has now soared 20% against Japan’s yen in just three months, 8% on sterling and 7% on the dollar – the latter compounding gains against a host of dollar-pegged, emerging currencies. 
ECB chief Mario Draghi pointed out last month that the euro’s trade-weighted index has been better behaved and still down more than 10% from 2009 peaks.
Yet this euro index too has rebounded 6% since November and is up almost 9% since Draghi’s speech in July defused the bloc’s sovereign debt crisis. –  Reuters