The Great Debate UK
Modern wars have no clear start and no clear end, leaving politicians free to deny their existence when it suits them and to claim victory even in the face of obvious defeat.
The same seems to be true of currency wars, judging by the reports from the meeting of the world’s finance ministers in Moscow, who, according to the FT, asserted that “central banks should not target their exchange rates, but added that monetary easing which had the side-effect of weakening a country’s currency was allowed”. This is a bit like saying that bombing civilians is OK as long as you’re actually aiming at terrorists – which, come to think of it, is more or less what we do say.
If you think it is only in the Economics 101 textbook that currency depreciation follows monetary easing as night follows day, then read on: “Shorting the Japanese yen ….hedge funds [have been] reaping billion dollar profits … in January.” The hedge funds had got the message.
The background to this saga goes back to the dark days immediately following the collapse of Lehman Bros in September 2008, when the US authorities hastily embarked on a campaign of so-called Quantitative Easing (again, as in all modern wars, uncomfortable realities have to be camouflaged in specially-invented newspeak – QE is simply what used to be called printing money). Britain did the same. True, neither the US administration nor the Labour Government of Gordon Brown actually took aim at the exchange rate – at least, not publicly – but the Americans were at the very least unconcerned about the effect on the dollar, and on this side of the Atlantic there was quiet satisfaction when the pound duly fell by 20% against the dollar and 30% against the euro.
The French President has been in the press a lot recently. Firstly, there was the triumph in Mali. “Vive le France!” could be heard in the streets and the swift removal of the Taliban from Northern parts of the country is to be lauded. But after a rousing welcome in Timbuktu, Hollande might find he has a chillier welcome closer to home.
This week Hollande spoke out against the level of the euro. Not only did he do that, but he questioned why the ECB is the only authority in the euro zone who has power over the currency and said that governments’ should have some say on FX policy. This is brave stuff. Hollande is questioning the notion of a free-floating currency, something that the euro zone is fully signed up to and advocates along with other countries in the G20.
from The Great Debate:
If the euro really is on the verge of collapse, as many pundits are now proclaiming, how come it is still so highly valued against other currencies, including the U.S. dollar?
That may sound like a crazy question, given the euro’s much-publicized decline over the past couple of weeks. It has been dropping as the possibility grows that Greece may seek to pull out of the 17-nation currency union following parliamentary elections there in mid-June. That scenario of a “Grexit” has spooked financial markets and pushed governments and business around Europe to draw up contingency plans.
from The Great Debate:
By Carlo De Benedetti
The opinions expressed are his own.
In a magnificent book published a few years ago Cormac McCarthy imagines a man and a child, father and son, pushing a shopping cart containing what little they have left, along a back road somewhere in America. Ten years earlier the world was destroyed by a nameless catastrophe that turned it into a dark, cold place without life.
There is no history and there is no future. But there is an objective: to head south toward the sea. Mythical places, only vaguely perceived, where there might be salvation. The father is getting older and is ever more weary. But he has the child with him. And he has his objective. He wants to take him southward to the sea. Toward a future that may still be possible.
By Laurence Copeland. The opinions expressed are his own.
Under the Arc de Triomphe, tourists can gaze up at the engraved list of Napoleon’s great victories: Austerlitz, Jena, Wagram… Perhaps a similar triumphal arch should be built in Brussels to commemorate the string of victories won by a tiny band of heroic Eurocrats over the mass of their combined electorates: Rome, Maastricht, Lisbon, Wroclaw, and now Berlin, where, to nobody’s surprise, the integrationists in the Bundestag have easily seen off the opposition to their plan to bolster the EFSF. Cue the now-familiar backslapping in Europe after each of their knife-edge victories over the forces of democracy.
The starting point for these Eurocrats/integrationists is that the popular will is simply an obstacle on the road to the ultimate destination of a United States of Europe. Whenever they encounter one of these inconvenient roadblocks, they fume, argue among themselves about the merits of alternative routes until they finally swerve triumphantly round the obstacle, congratulating each other for their ingenuity and skill.
Ireland is on a wave. After a bad patch and a massive loss of confidence eventually it looks like it has turned a corner and we can start to believe that there may be brighter times ahead. Of course, I could be talking about the Irish rugby team who had a stunning win over Australia at the rugby World Cup in New Zealand. But the economy isn’t doing too badly either.
Data last week showed that the economy grew by a respectable 1.6 percent in the second quarter, after expanding by an even better 1.9 percent in the first three months of this year. This beats the dismal growth rates in the UK and the euro zone, which both came in at 0.2 percent in the three months to June.
from Felix Salmon:
Michael Cembalest's note explaining the EU Mess with lego seems to have touched a nerve, and while a part of that is due to the lego, I like to think that some of it is due to the fact that actually the diagram does very well what few other explanations have done -- which is explain just how messy and multipolar the euro crisis really is.
Cembalest's diagram includes a dozen different stakeholders, each trying to fob off the burden of the euro crisis onto someone else. (The single noble exception here are the opposition parties -- the Social Democrats and the Greens -- in Germany.) It's all too easy, looking at Europe from across the pond, to divide the entire continent into two halves: a profligate south, spending beyond its means, piggybacking on the rich north, which doesn't want to bail them out.
from Felix Salmon:
As markets plunge again today, ostensibly on existential worries about the eurozone, you might want a plain-English explanation of what the root of the problem is. And John Lanchester is a great place to turn for such things:
On 16 August, Nicolas Sarkozy and Angela Merkel had an emergency meeting to decide what to do about the Eurozone crisis. After it, they gave a press conference at which they spoke in platitudes about the need for Europe to improve its ‘economic governance’, avoiding all specifics. They precisely and explicitly ruled out the only two things which would have helped: the creation of ‘eurobonds’, i.e. debts backed by the full economic weight of all the countries inside the eurozone; and the extension of the €440 billion European Financial Stability Facility. It’s easy to see why they did this, and their reasons are entirely to do with the domestic unpopularity of giving more aid to the indebted and severely struggling ‘Club Med’ countries of Southern Europe. Unfortunately, Merkel and Sarkozy’s inaction is a recipe for certain disaster. Everybody and his cat knows that the eurobond is the only way out of the crisis for the eurozone in the medium term; as for the necessary size of the short-term bailout facility, Gordon Brown’s guesstimate was €2 trillion. That ‘could have convinced the markets that Europe meant business’. Huge, sustained and manifestly undeflectable government intervention on that scale is the only thing which will cause the speculators and hedge-funders and ‘hot money’ types to back off. Instead, nothing.
Baby-boomers like me, who grew up in the shadow of World War II, have to acknowledge with gratitude that the Germany which again dominates Europe is in most respects a model democracy – multiracial, prosperous and contented. However, there is one worrying aspect of the German mentality which seems to have survived intact from its unhappy history, and it is an aspect which is likely to be tested to the full in the coming weeks and months.
From the moment when the Maastricht Treaty was dreamed up in the early 1990s to the inception of the euro zone in 1998, Germany had any number of opportunities to kill the project off and indeed, time and again, policymakers in Bonn or Berlin or Frankfurt voiced their reservations in public. The Bundesbank, in particular, with its overwhelming prestige, spoke out forcefully against what it saw as the dangers of premature monetary union.
from Felix Salmon:
Going into the Jackson Hole conference, everybody was breathlessly awaiting Friday's speech from Ben Bernanke, which turned out to be incredibly boring. The most important speech of the meeting, by far, came on Saturday, and came from the new head of the IMF, Christine Lagarde. In decidedly undiplomatic prose she came right out and said what needed to be done:
Two years ago, it became clear that resolving the crisis would require two key rebalancing acts—a domestic demand switch from the public to the private sector, and a global demand switch from external deficit to external surplus counties... the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing...