“Credit downgrades will follow if there is not quick action in fixing the situation, and I do hope Finance Minister Siniscalco makes some decision……The government lost control of current expenditure. The situation is very serious.”
Prodi is about to become the whipping boy, having to go into an election with the ‘popular’ policy of making widespread spending cuts.
Many readers have been asking about the mechanics of any hypothetical ‘euro’ break-up, or indeed of what might happen if one country were to leave. Up to now, we have been told this is impossible, but clearly it is possible, and, however remote the possibility may seem (the order of 5% risk is the topical response) institutions in the financial sector cannot be without a plan ‘b’. In this context, this article, I found whilst idly noodling around the net, could be seen as informative. It is written by a software engineer for a magazine called Software Reality. The article’s title: reverse-engineering the euro. Continue reading →
1/. The German Finance Ministry have declined to comment on the Stern report that discussions took place last week between Finance Minister Hans Eichel, Bundesbank President Axel Weber and various economists on a possible failure of European Monetary Union. Continue reading →
Against the dollar, the euro fell to $1.2370, the lowest since Oct. 14. It bought $1.2390 at 2:05 p.m. in Tokyo from $1.2475 late in Asia yesterday, according to electronic currency- dealing system EBS. The euro will probably decline toward $1.22, Jacobs said.
The euro’s initially muted reaction to the French vote on a holiday-thinned Monday turned into a sharp fall when it broke below key $1.2450 levels, pushing as low as $1.2371.
Now it’s at 1.2315, and this is also becoming a dollar rise story as the yen is also begining to fall against the USD.
“The Euro lost support at 1.2450 in Asia on Tuesday and this pushed the Euro down to a low of 1.2315. The convincing break below 1.25 against the US currency will reinforce negative Euro sentiment and will raise speculation over a move towards the 1.20 level in the medium term.”
The euro reached its lowest level against the dollar in seven months last week dropping from a valueof $1.311 a month ago to $1.255 on Friday. This was the lowest level since last October. Undoubtedly there are a confluence of factors at work here: yesterday’s French growth numbers, longer term stagnant growth in Germany and Italy, Sunday’s elections in the Federal Republic, the up and coming referendum in France, rumourology about forthcoming ECB rate cuts etc.
This downward pressure will in reality be welcomed in many quarters, since it could give some useful relief to hard pressed exporters, and it may help those (eg Spain) with serious balance of payments problems by offering some kind of corrective impetus.
But all of this only draws attention to one underlying fundamental of the situation: there has never been a ‘strong euro story’, it has always been a ‘weak dollar’ one. And it is here that things get really complicated, since it begs the question of whether the US is able and ready to live once more with a ‘strong dollar’, and if it isn’t then this immediately poses the question as to what exactly the repercussions will be? Continue reading →
The ECB met earlier today to conduct the monthly review of interest rate policy. It came as a surprise to noone that the outcome was to leave everything just as it is. Surprisingly though the decision this month is surrounded by a little more controversy than has been the case of late since Italy’s Berlusconi and economic opinion in Germany have been suggesting that some reduction of rates might be no bad thing, whilst Spain’s economy minister (and former EU commisioner) Pedro Solbes is reported to have been pushing for an increase. Why the difference? Continue reading →
Currency traders around the globe lazily staring into their screens must have found themselves transfixed last Friday when the flatline indicating the value of the Chinese yuan (or renminbi if you prefer) suddenly jumped to life. And so it was that during a brief 20 minute interval the yuan surged to a level of 8.270 to the dollar from the hypnotic and seemingly eternal value of 8.276. Now 6 thousandths of a dollar isn’t really a very big deal, but it is the sheer fact that it happened that is causing all the fuss. Continue reading →
In a post which appeared earlier this week Tobias asks us whether, given some of the possible consequences of a French “non”, it might not be reasonable to ‘scare’ voters a little by spelling out some of the potential fallout which might follow a French rejection of the Constitution Treaty.
Perhaps the phrasing is unfortunate, but undoubtedly voters in Eurozone countries need to think long and hard about one especially sensitive area of impact: the future of the euro itself. Continue reading →
I was a little surprised to read in the Christmas edition of the Frankfurter Allgemeine Sonntagszeitung (not yet online, subscription wall, in German) that Robert Mundell seems to have changed his mind. In his seminal 1961 paper about monetary integration, he famously stated that “the optimum currency area is not the world”. Now it appears he favors a sort-of worldwide currency union, initially comprising Dollar, Euro, and Yen (apparently, he’s also made that point earlier this year in Lib?ration (subscription wall, in French)). Continue reading →
After a series of posts on the rise of the euro earlier in the year, I’ve been relatively quiet on this front of late. This doesn’t mean that the problem has gone away. The growing feeling that the US economy was taking off certainly eased the pressure, and the euro has hovered around the low 1.20s. Now it seems that with growing awareness that growth may be slowing large scale ‘currency trading’ is coming back on the agenda.
Trading on the world’s foreign exchange markets has leapt to a record $1,900bn a day, driven by renewed interest in currencies as an asset class and the return of hedge funds specialising in currency bets.
Turnover in currency and interest rate derivatives sold by banks also soared to new record levels, according to a three-yearly survey by the Bank for International Settlements……
After slumping amid the introduction of the euro, which eliminated the currencies of some of the world’s biggest economies, trade in foreign exchange bounced back between 2001 and 2004.
Source: Financial Times
There is once more a lot of talk around about the need to float the Chinese renmimbi (which is a move which should come in gradually, but which won’t have sufficient impact to resolve the problem IMHO).
Trying to see into the future is a pretty fruitless endeavour, but we should all be aware that any sustained weakening in the yen and the US dollar would almost kneejerk style bring the issue of a rising euro straight back on the agenda. Definitely one to watch.