LONDON -- If a strong economy and a strong currency are meant to go hand in hand, the 12-nation euro zone is disproving conventional wisdom, and posing stiff challenges for policymakers with implications for the wider world economy.
After a bumpy ride in its four-year life, Europe's common currency is riding high. A combination of a weak dollar and relatively high interest rates in the 12-nation zone have pushed the euro to some of the best levels it has held against the U.S. currency. Those who saw the euro becoming an alternative to the dollar as a reserve currency can rekindle their hopes, viewing it as the monetary equivalent of France's attempt to construct a second "pole" in world politics as a counterweight to American strength.
But the currency's rise has done nothing to bring economic cheer to member-nations. Germany is heading for recession with rising unemployment and a standoff between the government and trade unions over proposed reforms to make the labor market more flexible. The government and some major unions in France are at loggerheads, too, over plans to change the pension system while growth is slumping and the jobless rate rising toward 10 percent.