European companies are increasingly being forced to turn to the dollar markets to raise funding as the credit crunch makes it almost impossible for them to launch deals in the euro-denominated market.This is going to hurt these European debtors when the euro inevitably comes down from its overly high valuation. The draught in euro-denominated bond investment is probably a sign of disbelief in the sustainability of the euro's high exchange rate against the dollar.
European money supply growth has been much higher than its US counterpart, especially in the narrow sense, and the emerging deflationary environment is just raising the actual buying power of the US dollar.
Europe is fundamentally just as over-leveraged as the US. The possibility of a deflationary trend in Europe should not be dismissed as a possibility, at least when it comes to the property markets. The biggest differences are in the levels of consumer debt. High corporate leverage is not as prone to cause deflation as excessive consumer debt is. UK is closer to the US in this sense, but it is not a part of the European monetary union.
