“The dollar is our currency, but your problem,” President Nixon’s secretary of the Treasury, John Connally, snapped to his European colleagues in 1971. Today, the dollar is America’s problem.

There are obvious reasons why the greenback is so cheap: growth is weak, the Fed is flooding the markets with money, a sweeping depreciation of assets is under way, and the credit crunch has raised serious questions about the reliability of American financial institutions.

Less obvious are the reasons for the relative strength of the euro, which Americans tend to overlook. In fact, the euro is a remarkable success story.

The common currency and market have been working as a powerful source of liberalization. Diplomacy at the headquarters of the European Union in Brussels broke monopolies in telecommunications and postal services and abolished state guarantees for the banking industry. And pressure from Brussels aided in the lifting of trade barriers in several nations. In one such instance, Germany’s ban on French raw milk cheese — which was state protectionism disguised as consumer protection — was lifted.

Germany also has greatly benefited from the fiscal discipline of the unifying euro. Aside from the short-lived euphoria stimulated by reunification in 1990, Germany was the sick man of Europe for years. Today, the country is back again. Last year it’s economy added some 2.5% to its gross domestic product. This year, even with a relatively stagnant American economy, it will add 1.4%, maybe more. The turnaround is partly a result of unpopular reforms. The former Social-Democratic chancellor, Gerhard Schroeder, in 2003 made a courageous change of position: he streamlined the welfare state and lowered corporate taxes. These reforms hurt his party and led to the rise of the leftist populist party, Die Linke, but they were of tremendous help for the German economy.

Furthermore, German labor unions have shown discipline, in spite of their fierce rhetoric against high executive pay and “unfair” wages, since the last recession in 2001 until 2006. This resulted in the decline of labor unit costs and it made it easier for the economy to absorb the enormous expense of integrating the former East Germany.

The most important factor contributing to the revival of the German economy has been the surprising strength of its manufacturers. During the last decade, small- and medium-sized companies, those that typically employ less than 1,000 workers, have undergone successful restructuring and have succeeded in integrating into global supply chains.

CEAG, a relatively unknown German company that employs 270 workers at home — and another 21,000 in China — produces most of the cell phone chargers worldwide. Another German company, Gartner, is the world market leader in the production of skins for skyscrapers. And Bauer, also a German firm, is the leader in the construction of sea ports and subways across Asia.

Yes, the euro is strong, but it also is overvalued today. At an exchange rate of $1.55 to 1 euro, the euro is between 30% and 40% overvalued, in terms of its purchasing power.

Such an overvaluation causes counterreactions: American exports are surging, the profits of some European exporters to America are squeezed, and euro-denominated investments become more risky. To be sure, there is no such thing as a “true” price or a “true” exchange rate. But it does suggest that there is a market correction ahead. The euro surge has all the signs of a monetary bubble to come. While this bubble probably will not burst, it will deflate sooner or later.

Maybe it will occur when world markets pick up on this fact, as some of Europe already has. But being a part of a currency union means there is not an easy way to react to economic change. And while some countries are doing their part to help the collective currency, others have not. In Italy, both Socialist and Conservative administrations have failed to fix the budget and to improve labor relations. Italy’s stagnating economy will not endanger the existence of the euro, but it is a burden for the currency.

And, sadly, Germany is jeopardizing its latest success by returning to old habits. Under the pressure of the populist left, Chancellor Merkel and her coalition of Conservatives and Social Democrats don’t dare to continue Mr. Schroeder’s reforms. Some reforms already have been scaled back, and a disastrously high minimum wage was introduced.

In Germany, the political climate has begun to change — the new attitude is that Germany is a victim of globalization. Social Democrats are trying to fend off the attacks of the surging left with populist proposals like a legal limit on executive pay and an additional tax for the rich. The “rich” means everybody who earns more than 10,000 euro per month, which means that the larger part of the middle class will be hit by the new tax as well. The conservative Christian Democrats are undecided about what to do, and the free-market oriented liberals are isolated, and therefore have no power to make any changes.

Right now, there is lot of angst in Europe: Globalization and the euro are seen as a threat to the European way of life. Take immigration, for example. In order to prevent downward pressures on wages, Germany, France, and other countries are limiting the amount of workers from the new member nations in the east in their labor markets. In doing so they also limit the growth effects of integrating West and East Europe.

The few countries with open borders for workers — Britain, which is not member of the euro-zone, and Ireland — are profiting from their decision. If Europeans overcome their angst, the euro will strengthen its position as the second most important currency in the world. If not, the long-term perspectives for Europe are gloomy. Not only will there be a short-term correction ahead, but a long-term decline of the currency will follow.

Let’s hope that the Europeans don’t stick to their fear ­— it will be in the best interest of all. In the meantime, it’s up to the Americans to work on their own currency issue.

Mr. Piper is a senior correspondent for the German newspaper Sueddeutsche Zeitung in New York.