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New Franco-German clash looming over the euro


Shqiptar

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The word on the street is that the worst of the euro crisis is over and while there's a lot more austeritizing to do, the home straight is supposedly at least in sight.

All of this is based on the assumption that Spain and Italy won't get destabilized politically over the next few months and that the modest growth seen in eurozone countries such as France will be maintained. Whatever about the former assumption, the latter one is looking more and more threadbare.

The euro has been rising of late on the markets because of the sense that the eurozone is out of the woods and the beggar-my-currency policy of the Americans and Japanese. A soaring currency is precisely what eurozone countries don't need right now. Government cutbacks mean that the domestic economy will be muted at best. The eurozone needs exports to keep growing and a soaring euro will make that much harder.

France needs to grow 0.8% this year in order for deficit targets to be met. Addressing the European Parliament today, Francois Hollande called for a managed exchange rate what with the euro having risen 4% in the last month and being now at a 15 month high.

While the European Central Bank has declined to comment the Germans are crying foul; but if a rising single currency drives the eurozone back into recession, something has got to give. With interest rates at record lows, the ECB doesn't have many tools left in its toolbox.

Sources:
1. Hollande calls for managed exchange rate - FT.com
2. UPDATE 2-France's Hollande calls for stable euro policy | Reuters
 


M

MrFunkyBoogaloo

The word on the street is that the worst of the euro crisis is over and while there's a lot more austeritizing to do, the home straight is supposedly at least in sight.

All of this is based on the assumption that Spain and Italy won't get destabilized politically over the next few months and that the modest growth seen in eurozone countries such as France will be maintained. Whatever about the former assumption, the latter one is looking more and more threadbare.

The euro has been rising of late on the markets because of the sense that the eurozone is out of the woods and the beggar-my-currency policy of the Americans and Japanese. A soaring currency is precisely what eurozone countries don't need right now. Government cutbacks mean that the domestic economy will be muted at best. The eurozone needs exports to keep growing and a soaring euro will make that much harder.

France needs to grow 0.8% this year in order for deficit targets to be met. Addressing the European Parliament today, Francois Hollande called for a managed exchange rate what with the euro having risen 4% in the last month and being now at a 15 month high.

While the European Central Bank has declined to comment the Germans are crying foul; but if a rising single currency drives the eurozone back into recession, something has got to give. With interest rates at record lows, the ECB doesn't have many tools left in its toolbox.

Sources:
1. Hollande calls for managed exchange rate - FT.com
2. UPDATE 2-France's Hollande calls for stable euro policy | Reuters
The €uro is appreciating because of the ECB's intervention- not because the markets sense the eurozone is out of the woods.

And, like YKWIML...

 

Davidoff

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Some economists feel that the next stage of the euro crisis isn't growth returning to the periphery, it's recession spreading to the core.

The basic problems in Europe have not been solved. Ireland is living, breathing proof of that. And the strength of the euro (up 12% against the dollar in the last six months) is only going to make things worse.
 

ruserious

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Some economists feel that the next stage of the euro crisis isn't growth returning to the periphery, it's recession spreading to the core.

The basic problems in Europe have not been solved. Ireland is living, breathing proof of that. And the strength of the euro (up 12% against the dollar in the last six months) is only going to make things worse.
I need dollars for next year. Should probably buy now...
 

Shqiptar

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The €uro is appreciating because of the ECB's intervention- not because the markets sense the eurozone is out of the woods.

And, like YKWIML...


The FT in source 1 in the OP begs to differ.

Investors have returned to the eurozone in force this year on increasing optimism that the worst of the crisis is over.
Of course, there's the shenanigans from other central banks too. What intervention are you referring to?
 

Shqiptar

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Some economists feel that the next stage of the euro crisis isn't growth returning to the periphery, it's recession spreading to the core.

The basic problems in Europe have not been solved. Ireland is living, breathing proof of that. And the strength of the euro (up 12% against the dollar in the last six months) is only going to make things worse.
Precisely. Remember when Cassandra Syndrome used to get all excited when the euro would slide down near $1.20? There's a lot more euro-doom waiting out there if it goes back above $1.40.
 

Shqiptar

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Great is this the end of the fuccken euro.
I'm resigned to the fact that the euro won't "end". It's a political project and politicians will never admit they're wrong. They're just going to keep patching up the patient and praying that their shift will end before that little green screen starts going beeeeeeeeeeeeeeeep. :shock:
 
M

MrFunkyBoogaloo

The FT in source 1 in the OP begs to differ.



Of course, there's the shenanigans from other central banks too. What intervention are you referring to?
All of them. The ECB only intervenes to strengthen the €uro.
 
M

MrFunkyBoogaloo

I'm resigned to the fact that the euro won't "end". It's a political project and politicians will never admit they're wrong. They're just going to keep patching up the patient and praying that their shift will end before that little green screen starts going beeeeeeeeeeeeeeeep. :shock:
How true.
 

Shqiptar

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All of them. The ECB only intervenes to strengthen the €uro.
Why would they want to strengthen the euro when:
(a) we all need exports to pull us out of the mire
(b) the policy of the Federal Reserve and the Japanese Central Bank in weakening their currencies would achieve that anyway?
 
M

MrFunkyBoogaloo

Why would they want to strengthen the euro when:
(a) we all need exports to pull us out of the mire
(b) the policy of the Federal Reserve and the Japanese Central Bank in weakening their currencies would achieve that anyway?
I wish I knew - I won't pretend to know all of the ins and outs of monetary policy but every example of ECB intervention (that I can remember) has been to strengthen to common currency - be it vocal or actual intervention - which is an anathema to exports and contradicts the actions of the BoJ or the FR.

Why that is I don't know.
 
Last edited:

Iphonista

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The eurozone has posted a whole raft of positive economic news of late....?
 

Shqiptar

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The eurozone has posted a whole raft of positive economic news of late....?
In time, a stronger euro will feed into higher export prices and we'll all get duly clobbered - economically speaking.
 

Shqiptar

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I wish I knew - I won't pretend to know all of the ins and outs of monetary policy but every example of ECB intervention (that I can remember) has been to strengthen to common currency - be it vocal or actual intervention - which is an anathema to exports and contradicts the actions of the BoJ or the FR.

Why that is I don't know.
How's about this?

With almost comic timing, just as Hollande has been lamenting the strength of the euro the ECB's balance sheet shrunk to an 11-month low as Eurozone banks repaid LTRO loans. This is a de-facto tightening, which may be euro positive in the medium-term as other central banks like the Fed see their balance sheets' balloon (the Fed's balance sheet rose to $3 trillion last week).

[...]
repayment of ECB loans is one of the things that might be contributing to a stronger euro and thus weighing on the future prospects for economic growth.
And then this just sums up the whole issue. The ECB is playing by the rules but no-one else is.

Of course in reality free-floating currencies are a bit of a myth. US lawmakers “do not” intervene in the currency market, yet QE has limited dollar strength for the last 5 years, the Japanese and Swiss authorities intervene directly in the markets and the RBA and RBNZ often reference the strength of their respective currencies as being a hindrance to growth going forward. Hence, if the Eurozone is the last to the currency wars party it risks getting burnt.
Hollande's Calls for a Lower EUR Fall on Deaf Ears - Action Forex
 

Iphonista

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Well, we'll see what happens at tomorrow's monthly meeting of the ECB. They DON'T like being told what to do by the politicians so don't be surprised if, after Hollande's outburst, there's a show of hawkish unity just to tell him to STFU.
 

Shqiptar

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Oh, certain Teutonic central bankers in Frankfurt won't be happy tonight. The French Minister for Industry, Arnaud Montebourg has called - effectively - for the ECB to involve itself in the currency war (which no-one wants to admit is happening) and get all down and dirty with the Yanks, the Brits and the Japs.

France's industry minister Tuesday called for a lower euro and said the European Central Bank's role should be reinterpreted, wading back into a currency debate that had been calmed by an agreement between the world's top finance ministers earlier in the month to refrain from competitive devaluations of their currencies.
French Industry Minister Wants Lower Euro And Currency War Entry ASAP: Demands ECB Start Monetizing Debt | Zero Hedge
French Industry Minister Calls for Lower Euro - WSJ.com
 

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