Euro at $1.50 is 'disaster' for Europe

Discussion in 'Wall St. News' started by S2007S, Oct 21, 2009.

  1. S2007S


    Euro at $1.50 is 'disaster' for Europe
    France has given its clearest
    indication to date that the surging euro is a threat to Europe's fragile recovery and will not be tolerated for much longer.

    By Ambrose Evans-Pritchard
    Published: 8:20PM BST 20 Oct 2009

    "The euro at $1.50 is a disaster for the European economy and industry," said Henri Guaino, right-hand man of President Nicolas Sarkozy.

    The currency has risen 15pc in trade-weighted terms since March, equivalent to six quarter of a percentage-point rises in interest rates. It briefly flirted with $1.50 against the dollar on Tuesday before falling back on intervention fears.

    What concerns European policymakers most is the lockstep rise against China's yuan. Beijing has clamped the yuan firmly to the weak dollar for over a year, quietly benefiting from the export advantages. It accumulated $68bn (£41bn) in reserves in September alone as a side-effect of holding down the currency. Fresh reserves are mostly being invested in eurozone bonds, pushing the euro higher.

    French finance minister Christine Lagarde said it was intolerable that Europe should "pay the price" for a dysfunctional link between the US and China. "We want a strong dollar, and we have reiterated it again in the strongest manner," she said after this week's Eurogroup meeting. China's trade surplus with the EU reached €169bn (£154bn) last year.

    Europe and Japan are now the last two blocs standing as everybody else lets their currencies fall, or takes active measures to hold down the exchange rate -- with "beggar-thy-neighbour" echoes of the 1930s.

    Brazil has become the latest country to intervene, resorting to controls to cap the real after its 42pc rise against the dollar since March. It is imposing a 2pc tax on flows into bond and equity markets. Finance minister Guido Mantega said the move was to head off an asset bubble. Critics called it a "desperate move" that would distort markets.

    Hans Redeker, currency chief at BNP Paribas, said the strong real is "eating away" at Brazil's manufacturing base. "They are not willing to take any more of the adjustment burden as long as China and other surplus countries do nothing," he said.

    Switzerland is openly intervening to hold down the franc in order to stave off deflation. Canada and New Zealand have talked down their currencies. Britain and Sweden have opted for stealth devaluations.

    Korea, Thailand, Taiwan, the Philippines, Indonesia and Russia have all been buying dollars to stem their currencies' rises. The effect is to perpetuate the imbalances that led to the credit bubble from 2004-2007 and ultimately caused the financial crisis. Reserve accumulation fuels asset booms because it creates a wash of liquidity and drives down global bond yields. Asia clearly needs to sharply revalue against the West to right the system.

    Professor Michel Aglietta from Paris University says the euro is 40pc above its purchasing parity of level $1.07 (a low estimate), citing it as the reason why Peugeot and Renault have shifted annual production of one million cars to Eastern Europe since 2004.

    Airbus is moving plants offshore, building A320 jets in China. It is relying heavily on US contractors for its A350 jet. Fabrice Bregier, Airbus chief financial officer, said the current exchange rate is "becoming very difficult for all industrial companies which have their costs in euros. We can only appeal to monetary authorities to see to it that there is stability in exchange rates."

    The European Central Bank could take some of the steam out of the euro by signalling a less hawkish policy. It may be pressured into doing so. EU ministers have the final say on exchange rate under Maastricht, though they have never used this power – publicly.

    What is missing is a unified front of EU governments. Italy has been remarkably quiescent, given its export slide. Germany has a higher pain threshold for a strong currency after gaining competitiveness by squeezing wages. But there are limits even in Berlin. The IWK institute says the danger point for German exporters is $1.45.

    Jean-Claude Trichet, ECB president, has stepped up his rhetoric against "disorderly" currency moves, warning that authorities on "both sides of the Atlantic" were monitoring the markets. He made an unscheduled appearance on Monday to drive home the point. The body language is changing.
  2. S2007S


    All it is is talk, bernanke says he supports a strong dollar yet another day goes by as the dollar becomes even more worthless and they don't even care to mention it or take the initiative to to find a solution.
  3. the1


    They want a weak dollar. It allows them to pay down debt at reduced prices and multinationals can sell cheaper goods overseas. The weak dollar ("we support a strong dollar") is all part of the grand plan. They just need to be careful not to let it go so low that the international community loses confidence in it that I think of it, perhaps that's part of the plan too :confused:

  4. WinSum


    I would like to see what are the assumption used to calculated the 1.50 threshold. Why $1.50 and not $1.51. How did he come up with that number ?

    The Euro went above 1.50 on 2/27/08 and stay above it for 5 months. Why wasn't the line in sand drawn back then ?
  5. Lot's of Eurozone countries have huge debt... in USD.

    That's at least one positive I can think of.
  6. Lethn


    ...... Sorry, I still don't get why it's a bad thing for the value of a currency to rise.

    It's like when people bitch about housing prices going down, I see terraced houses still being sold for £1 million in London lower prices would mean that more people would be able to actually move in and buy these houses as opposed to just getting mortgages on them when they can't afford it. My common sense just goes haywire when I listen to this kind of crap because you know there's something wrong with what they are saying.
  7. "S2007S added to your ignore list "

    smartest thing i did today

    (yes, it's been a lackluster day)
  8. Correctamundo! Those who endorse a weakening currency are short-sighted, self-serving LIARS AND THIEVES!!
  9. 1) It's a problem when the whole world devalues and you not.

    Ofcourse the debasing countries might end up in bigger doodoo then those who stand firm but that's more of a longer term projection.

    2) Many blogs and people who have dugged deeper claim the ECB runs a policy just as loose then the FED so what's pushing the Euro up then?

    Irrationality perhaps.

    Which can last a long time.
  10. Hooray!:D
    #10     Feb 7, 2010