| In the past few years the Deutschmark has been excessively strong and this has clearly run counter to domestic economic fundamentals. However, in recent months we have seen the Deutschmark return to more realistic levels. The question is, will the Deutschmark stay where it is, or are the markets pushing for an even weaker Deutschmark in line with the recent trend. We believe policy makers around the world now have an interest in stabilizing exchange rates where they are, as much as they had an interest in bringing forward a correction in exchange rates to rectify the severe misalignment on the forex markets between 1995 and 1996. The need to stabilise the major exchange rates at their current levels and to ensure mutual cooperation between politicians and central banks around the globe is also underlined by the fact that the fixing of the European currencies and the introduction of the euro is approaching fast and this can only take place in an environment which is very much one of stability. From a purely German perspective, the current Deutschmark exchange rate is fairly priced. The domestic economy is weak and the German corporate sector needs all the stimulus it can get from the forex side. |