Chrystia Freeland

Euro is not in danger, IMF chief says

Chrystia Freeland
Dec 17, 2010 17:02 UTC

Yesterday,  IMF Managing Director Dominique Strauss-Kahn sat down with Chrystia at the Newseum in Washington, D.C., for an hour-long Newsmaker interview. The European sovereign debt crisis dominated most of the conversation. The IMF chief admitted that the situation “worried” him and that he wanted Europeans to find a more “comprehensive” solution:

Well, I’m worried. And that’s why I’m urging the Europeans — I just attended the Euro Group meeting, which is the group of the finance minister of the eurozone — two weeks ago. I’m urging for the European Union to provide a comprehensive solution. Because this piecemeal approach, which the deal with Greece — as was Ireland after, and maybe another country later on — obviously doesn’t work. And the markets are just waiting for what’s next …  The institutions are still thinking too local when they’re facing global problems.

A more comprehensive solution will require better coordination among national European governments.  As Strauss-Kahn said, “You can’t have a single currency, especially in times where you have troubles, without having more coordination in economic policy.” Two concrete proposals the managing director endorsed were stronger stress tests for the banking sector and an increase in resources for the European Financial Stability Facility, the European bailout fund.

Although the euro has fallen in recent weeks on speculation that some battered members of the eurozone might be forced out, the IMF chief assured Chrystia that the euro is a resilient currency that will survive this period of panic:

It’s a strong currency, which behaved during the last ten years better than even the deutschemark in the previous decade. I see absolutely no reason — I see many reasons why there may be a problem in the eurozone in terms of growth — unemployment, even beyond unemployment, social problems, because the question is a very difficult question to solve in the coming 10 years. But that doesn’t mean at all that I see any threat to the euro. Any solution other than the euro would be worse for the eurozone members.

A tour of world currency markets with John Taylor

Chrystia Freeland
Dec 6, 2010 19:00 UTC

Chrystia interviewed currency maven John Taylor this morning to kick off the Reuters 2011 Investment Outlook Summit. Taylor is the chairman and CIO of FX Concepts, the largest currency hedge fund in the world, with around $8.5 billion in assets under management.

Taylor led Chrystia on a tour of world currency markets and offered his predictions for 2011, including:

–The euro will sink to parity with the dollar, thanks to a debt crisis in Spain.
–Switzerland, which is a “little Brazil,” will see the franc rise against the euro as capital leaves the eurozone.
–The Australian dollar will depreciate by 15 or 20% due to a fall-off in commodity and housing prices.
–The Canadian dollar will depreciate to C$1.15 vs. the dollar on lower commodity prices and lower growth in the U.S.
–Sterling will appreciate against the euro.
–The Brazilian real is attractive but its outlook is uncertain given the Brazilian’s government’s determination to tame appreciation. On the other hand, investors like Taylor who are bullish on Brazil may have more ammunition than the government, thanks to the Federal Reserve and the resurgence of the carry trade.