The Great Debate UK
–Kathleen Brooks is research director at forex.com. The opinions expressed are her own.–
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.
Sure, there are some rogue G20-ers who manipulate their currencies. The Swiss and the Japanese do it openly, others adopt more covert measures, but for a head of a member state in the currency bloc this is a political hot potato that could leave him with some explaining to do at the ECB and also at the next G20 meeting.
When the Greek crisis began, there was much talk of contagion as the greatest short-term risk. In my view, this worry is almost irrelevant because bondholders are in any case facing a haircut of over 70%, so the question of default or bailout is now merely a technical detail.
From a longer term perspective, there is also little reason for the Germans to panic over a Greek default, even if it ultimately leads to the disintegration of the euro zone. The line peddled by a number of commentators and politicians that Germany has “done very well out of the euro zone” begs the question of how well it would have done without the euro zone, a question to which I do not know the answer – but nor does anyone else.
Mixed reaction from major European banks to appointment of Naoto Kan as new Japanese finance minister. ING is pretty scathing, saying the appointment sidesteps a process of change Japan must undertake to avoid further stagnation or a fate far worse.
"PM Hatoyama has appointed someone with no experience in economic management... Mr. Kan takes on the finance minister role without a well documented, deeply considered policy agenda. Here we rely on reports of positions he has taken in the Cabinet, and from public statements on economic management. These suggest his instincts are to pursue a stimulus strategy involving higher government spending; a weaker yen and ultra-loose monetary policy. Mr. Kan appears tone deaf to microeconomic reform or to the threats to financial stability posed by high public debt."
November meetings of leaders from the Group of 20 industrialized nations may not have had exchange rates on the agenda, but the notes prepared by the International Monetary Fund included some meaty foreign exchange references.