The euro fell briefly below $1.19 yesterday. There is nothing surprising or exceptional about that, the common currency has been drifting steadily downwards against the dollar for a number of, by-now, pretty well known reasons – better economic performance in the US, a growing interest rate differential between the ECB and the Fed, political issues following the referendum noes, and an incapacity to decide what to do with the SGP. Yesterday however, an apparently new element was introduced: Christian Noyer, and his appearance before the Foreign Affairs Committee of the French National Assembly.
That this should have caused a stir surprises me. Christian Noyer is Governor of the French national bank (and not simply, as much of the press report, an ECB governing council member). It is therefore perfectly logical that when asked whether any country could leave the eurozone, he should reply in the affirmative. EU member states are, as Noyer says, still sovereign nations. He would therefore have been lying to answer ‘no, it is impossible’. Curiously, the other part of M. Noyer’s recorded testimony, that any exit would put in question continued membership of the EU is far more debateable, yet seems to have attracted far less attention.
Membership of a currency union is (or should be) an economic, not a political decision. Decisions on entry or exit should therefore be taken on economic grounds, and discussions of the issues involved should be possible without an atmosphere of emotional hysteria. Of course, if your currency falls simply because someone states the obvious (I mean the information content *is* zero), then this may indicate that there is a rather deeper problem knocking around somewhere or other.
Update: Jean-Claude Trichet yesterday defended the current ECB TWIRP stance (two per cent interest rate policy) before the European parliament?s monetary affairs committee and understandably rejected a call for an annual evaluation of the benefits of the common currency for zone-member citizens.
“On Monday night Mr Trichet told the parliament that long-term interest rates were at the lowest level for a century and the cost of borrowing was giving ?considerable support? to economic growth. However, he rejected a proposal by parliamentarians for an annual ECB evaluation of the benefits of the single currency for citizens, citing ?methodological and data constraints?. The committee?s report said the ECB had ?reacted correctly to economic and financial developments in 2004? and said it should continue to be vigilant over ?oil prices, residential property prices and to the still prevailing excess liquidity?.