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Euro at $1.50 — a disaster or an alibi?

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OUKTP-UK-FINANCIALThe French can never resist blaming a strong currency for their misfortunes. So it should come as no surprise that Henri Guaino, President Nicolas Sarkozy’s influential political adviser, has said that having the euro at $1.50 is “a disaster for European industry and the economy”. Since the euro stood at just above $1.49 as he spoke on Tuesday, Guaino presumably sees the single currency area as on the edge of the abyss. 

This is manifest nonsense. European exports to the rest of the world, including the dollar zone, were booming in mid-2008 when the euro stood at just short of $1.60. The euro area had a trade surplus with the United States at the time. The steep slide in exports over the last 15 months has been due to a collapse in demand, even though the euro fell as low as $1.25.

A strong currency is not necessarily an economic handicap. West Germany’s export-fuelled post-war economic miracle was built on the foundation of a strong deutschemark.

A strong euro has kept the prices of imported commodities and energy under control and thus helped moderate inflation. That in turn enables the European Central Bank to keep interest rates low, benefiting industry.

Anyone for cov-lite?

In our post-credit crunch era of avowed simplicity and rigorous credit analysis, you’d have thought that bond investors would be demanding tougher terms than ever to finance high yield companies.

Not at all, according to recent research by Moody’s on the growing European high yield bond market, where deal structures are looking rather toppy. 

Reality arrives at The Rock

The surprising thing about Northern Rock’s decision to defer coupons on 1.6 billion pounds of its subordinated debt is the timing — arguably, it’s a miracle investors were getting paid anything at all.

The bank on Tuesday said it would stop paying coupons on various subordinated bank bonds, securities that count as regulatory capital.

Opel keeps hope alive

With General Motors in a Washington-guided bankruptcy and car makers around the world benefiting from government subsidies, politics has become firmly intertwined with the fate of the global auto industry. Even so, the deal reached in late May between General Motors and a group led by Magna International for GM’s European arm, Opel, smacked of trying too hard to come up with a politically convenient solution.

So the news that GM is now talking to other potential bidders is a welcome sign. Among the bidders are RHJ International, a publicly traded Belgian spinoff of the American private-equity firm Ripplewood Holdings, and Beijing Auto.

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