On the High-euro Fallacy

Those whose principal problem is not one of shortness of memory may like to recall that not so long ago we were being told of the 'inevitability of the dollar correction', and even encouraged to believe that a high euro might be beneficial as it could force Europe to accept reforms. Now the folly of the high euro seems to be becoming widely accepted, so the attention should turn to the fact that the dollar is once more rising, and what this may signify in terms of the US potential deflation problem. Here, it seems, there are no free lunches: Now for MS's Eric Chaney:

With the benefit of hindsight, the sharp appreciation of the euro against all currencies that started in June 2002 appears to be the main factor behind Euroland's shallow recession in the first half of 2003. Conversely, the recent weakening of the single currency against the dollar and the yen, a currency wrongly overlooked by European analysts, should foster a recovery in Europe by the end of this year. I think this is one of the main reasons why German manufacturers now look more confident about the future (see “Have Surveys Fallen to Summer Madness?” by Elga Bartsch and Eric Chaney, Global Economic Forum, August 27, 2003).
Source: Morgan Stanley Global Economic Forum
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I think we would also do well to wait a little before deciding that what we have on our hands in Europe is a 'shallow recession'