The American Interest

Fragile Empire

There have been strong empires with weak currencies, but not often and not for long.  The Soviet Union, Spain after Philip II, the Ottoman Empire after Suleiman, and an impoverished Britain after Versailles all come to mind.  That financially fragile states cannot support ambitious political and military ventures is obvious to common sense and confirmed by experience.  It was, therefore, interesting to observe the surprising lack of geo-economic excitement, in the last week of May, when the euro hit an all-time high against the U.S. dollar.  At $1.20, Europe’s common currency completed a 16-month rally from a low of only 82 cents.  “We are in a very pessimistic dollar season,” a leading German banking analyst said, and, “as long as there are no reasons to correct that view, it will go on.”  While such pessimism is beneficial to the recovery of the American economy—who can be against cheaper exports and lower trade deficits?—the political significance of the dollar’s continuing weakness deserves closer scrutiny.

After the victory in Iraq, the United States appears more powerful than ever, mightier than any power in the whole of history.  For better or worse, the Bush administration proved that it was able to do what it had set its mind to many months ago.  It has stepped on many toes in the process, humiliating “Old Europe” (avoidable),...

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