The chairman's Frankfurt remarks came as a surprise to even the closest Greenspan-watchers, and may be traced to deep distress in Europe over the U.S. presidential election returns. The European financial community was confident that Sen. John Kerry would be president and, as he promised, would force through Congress a series of U.S. tax increases that supposedly would end the decline of the dollar against the euro. To the Europeans then, Bush's unexpected survival means more of what European Central Bank President Jean-Claude Trichet has called a "brutal" rise of the euro.
Thus, Greenspan's speech sounded as though he was trying to get himself off the hook by acknowledging that Europe's economic plight was America's fault. But his placing the blame on the U.S. trade deficit did not cheer his colleagues in Berlin. As one American analyst puts it, it is Europe rather than the U.S. that has the dollar problem.
Part of the problem is that China's and other Asian currencies are pegged to the dollar. Just as Asia depends on exports to the U.S., Europe depends on exports to Asia. At the heart of this equation is global reliance on the American economy's dynamism and prosperity.
Since Greenspan often strays far from the conventional jurisdiction of a central banker, he might well have lectured his European listeners about the need for structural reform of their own economies to cut away the socialistic undergrowth. Instead, he did his imitation of Sen. Conrad fantasizing about the revenge of America's creditors. His speech's minimal negative impact on financial markets may suggest a new awareness that the chairman wears no clothes.