Trading in currencies is predominantly driven by technicals which explains why trends once firmly established are very hard to break unless there's compelling fundamental changes.
Agreed perhaps the reason why I like the recognition of trends.
Actually the Euro was much more a political than an economic conception. Those politicians considered the benefits for the political unification of Europe to outweigh potential economic problems due to the significant differences in economic development within the Eurozone countries.
That may be have been the theory, [and the reason why at least myself, never believed the Euro will succeed], but you can not simply look at it from the political side. As we can see that...
However, while the Euro did not live up to the hopes of some politicians that it would become an alternative world reserve currency and those who bought into that idea, especially the Japanese, got burned badly its introduction has actually resulted in quite a few tangible economic benefits for Europe. Trade within Europe has become a lot more efficient as hedging and transaction costs due to currency conversions have been eliminated
Trading in Europe could be more efficient as a result of other policies, i.e. less socialism, without having to go through the trauma of creating an artificially valued currency. (my opinion). [oh the tangled webs we weave].
The devaluation against the US Dollar has stimulated export demand which in turn has boosted economic growth. Of course the flip side to this is that it creates disincentives to carry through with needed structural reforms which is especially dangerous considering that most European governments are currently dominated by socialist parties. In the short term it is only with energy prices that the weak Euro presents a real problem for the Europeans as crude oil is settled in US Dollars. Most of the worry in the population concerning the weak Euro is due to most people's intellectual inability to distinguish between internal stability, i.e. price stability/inflation, and external stability of a currency.
Not to mention the loss of trust in such currency perhaps? I do not believe you can separate whatever advantage of having a single currency from the fact that people's behavior in each country is different and WILL affect how things are run.
This may sound as a layman's opinion, but at least in my experience, people's attitude in the long run affects the economic performance of a country, regardless of the "law" or based on strict economic theory.
Example ?
Take Argentina....
By law, the government CAN NOT devalue the peso, unless a 2/3 majority can be obtained in Congress....
Meanwhile, the country is deteriorating economically (I don't care what the reports say), I was there in May, and I saw and talk to the people... they are NOT going to make it. Sooner or later, they will have to devalue.
A lot of industry has gone to Brazil... Much larger market and labor is super cheap compared to Argentina... Argentina wants to be (badly), part of the first world and they want to do this by "default" (i.e. have a strong currency), yet the country simply does NOT have the needed infrastructure and productive capabilities... not to mentioned that the people are getting tired of not been capable to keep up with the tremendously high cost of living.
It is the geopolitical example of the expression:
Attempt to live with Champagne taste with a Beer drinker's budget -g- [I hope no Argentinean reads this -gg-] Of course, my opinion only.
The devaluation of the Euro -vs- the Dollar is the opinion of the markets as to what the real value of a currency (or anything else for that matter). A clear opinion without political disguises, I think.
BTW from a historical perspective the Euro (taking the German Mark as a proxy) has been much lower against the US Dollar in the mid-eighties than it is now.
This tells me that lower levels may follow for the Euro, since if you were to take the DM on its own, it is possible that by now it would be doing better, in spite of having bought the other half of the country. (around the mid eighties).
Why? Interest rates in Europe are still considerably below those in the US.
My point was that as interest rates stopped increasing in the US and not in Europe, the Euro would be improving as the differential in interest rates was being reduced. This has not happened. So it tells me Mr. Market is seeing something not entirely right.
What does that have to do with the value of the Euro? Besides those issues are not any more sever than those in any other country including the US. This is a case of preception being out of whack with reality due to the Germans' historical heritage.
I used the German example, as it has been the more notable, nothing else. My point was more to emphasize that in the long run; it will be impossible to use a currency in order to integrate a region with such a wide difference in their cultural and socio-economic levels and customs.
This adds to the already problematic situation of these governments being so socialist and at the same time attempt to structure unification based on a "free market" mentality in order to compete with the USA.
Is more or less akin to ask: "What does a woman want ? " -g-
JUST KIDDINNGGGGGGGGGGGGGG !!!!!
You've got a funny picture of the French <g>
How could I not ? -ggg- However the fact that they have the best food, and some of the best wines... I will forgive them -g- |
