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To: Zardoz who wrote (71481)	6/11/2001 7:24:33 AM
From: long-gone	Respond to of 116768

Forbes Tony Blair Contends With Euro Zone Paul Maidment, Forbes.com, 06.08.01, 7:14 PM ET NEW YORK - Investors' first reaction to the landslide re-election of the Labor party in the U.K.'s general election June 7 came in the currency markets. Sterling strengthened. Odd. If Britain is to join the euro zone--widely seen as "the big project" for Prime Minister Tony Blair's second term--sterling will have to be devalued. Reality soon reasserted itself, however. In London trading today, sterling reversed itself to reach a new 15-year low against the dollar at $1.3775. The comprehensive victory of Labor and the disarray of the Conservative opposition seem to have convinced investors that the U.K. is more likely than ever to join Europe's Economic and Monetary Union. The prime minister and many of his senior lieutenants are known to support euro-zone entry in principle. Before his re-election, Blair promised to make a decision on whether to hold a referendum on joining the euro within two years of the election. Now market talk is of a referendum on the issue by July 2002--though if the options market is anything to go by, such scuttlebutt is premature. Britain's entry into the euro zone, if it comes, could take most of the length of the current five-year parliament. Here's the timetable. First the Treasury must decide if there is a "clear and unambiguous" economic case for entry. Gordon Brown, the U.K.'s finance minister, has set five tests to establish that case--each with just a sufficient element of subjectivity to provide him with a political out if necessary. The Treasury has two years to make that assessment. If that assessment supports entry, the cabinet will decide whether to join. A yes decision would be put first to parliament and then to a national referendum. If the yes decision is upheld by the British people, the next step would be for the European Union to rule that the U.K. qualifies for entry to the euro zone by meeting what are known as its Maastricht criteria. These measure whether Britain's economy is sufficiently in sync with the rest of Europe for it to share a common currency. Finally, the exchange rate for the conversion of the pound into the euro would have to be set, and the U.K. government and the Bank of England, its central bank, manage whatever adjustment to the new rate is necessary, most likely a substantial devaluation. Were the Treasury's assessment to be made today, these tests would arguably be met--or as plausibly as possible without knowing the exchange rate at which the pound would be converted into the euro. Whether the tests have been met "clearly and unambiguously" would take a politician to answer. But the tests are unlikely to be an impediment to British entry to the euro zone if the political will to join is there. The acid test of the political will be the referendum. Pro-Europeans lead the Labor Party. Euro skeptics lead the opposition Conservatives. But a yes vote, even with the government campaigning for it, cannot be taken for granted. Both parties are as divided over Europe as the country as a whole. A recent Gallup poll found that 40% said the U.K. should never join the single currency, or not for many years; 11% were in favor of joining now; 46% of joining, but not yet. William Hague's successor as leader of the Conservative Party will be a crucial player in the referendum. The front-runners are Michael Portillo and Ian Duncan Smith. Portillo could conceivably dump the Tories' opposition to the euro, which proved so electorally disastrous for Hague. At the very least, he is more likely to argue the case against joining the single currency on economic and timing grounds than Smith, who shares Hague's strong objections on grounds of national sovereignty. An economic argument against joining the euro zone at this particular moment could prove seductive to voters. Assuming Blair wins popular backing for applying for entry, the next issue is whether the rest of Europe says the U.K. qualifies to be let it in. The European Commission and the European Central Bank would make that assessment with their decision subsequently ratified by the European heads of government, voting by qualified majority. The U.K. meets all the Maastricht treaty tests but one. It is fiscally sound; its long-term interest rates match the best euro-zone levels; and it has the lowest inflation rate in the EU. The stumbling block--and it is a big one--is the U.K.'s exchange rate. The formal requirement of two years of broad stability through membership of the exchange rate mechanism, which sterling will not have had, is a technicality that can be overlooked. The big issue remains the entry exchange rate. This has to be agreed unanimously by all euro-zone members and the U.K. Entry at anything close to the current exchange rate of E1.66 would be unbearable, not least for the U.K.'s hard pressed manufacturing exporters who have long bemoaned that they are bearing the burden of an overvalued currency. Many analysts are looking to an entry rate of around E1.48 to E1.53 as being the highest that would be economically viable for the U.K. Yet even this 10% devaluation might be too little. The euro zone accounts for only about a half of U.K. trade. For the U.K. the level of the dollar is as crucial as the sterling-euro rate. Adding the euro-dollar rate to the equation suggests a euro-zone entry rate closer to E1.30. *Would the rest of Europe accept such a competitive devaluation?* Managing such a steep fall in the exchange rate from its current levels would be no easy matter for the U.K. government. Blair has promised expanded spending on public services in his second term, which he must fund from the tax revenue of a slowing economy. Juggling fiscal and monetary policy so he delivers his political promises while controlling inflation and securing the exchange rate will be a huge political gamble for Blair. He has had his political mandate renewed overwhelming by the British electorate, but not specifically on this issue. Public services, not the euro, was the true issue of the election. Logic says that Blair's best chance of success would be to push early for euro entry, signal a credible target entry rate and give himself time to let the inflationary consequences of devaluation subside and sterling to stabilize before entry. Blair will be acutely aware that he will have to face the electorate again no later than 2006, perhaps barely a year after the U.K. joins the euro zone. For investors who think Blair will take the gamble, shorting sterling seems the straightforward strategy. Equity investors with a short-term horizon could buy interest-rate-sensitive U.K. stocks while those with a medium-term horizon could look for U.K. companies with currency-rate exposure. A third strategy would be the economic convergence play--sell long-dated U.K. government bonds and buy German ones. forbes.com

To: Zardoz who wrote (71481)	6/11/2001 1:36:12 PM
From: goldsheet	Read Replies (1) \| Respond to of 116768

> Not to mention the 15+ posts that where more about me then gold Debating 101 Attack the messenger, instead of the message, it's easier !

To: Zardoz who wrote (71481)	6/12/2001 10:07:58 AM
From: long-gone	Respond to of 116768

Why higher today? Is ML rolling over & allowing for a partial rise?

To: Zardoz who wrote (71481)	6/12/2001 11:05:49 PM
From: Lucretius	Read Replies (1) \| Respond to of 116768

still have your fictional short position on gold on???? just curious.. thanks.

To: Zardoz who wrote (71481)	6/13/2001 9:34:18 AM
From: lorne	Respond to of 116768

Hi Hutch. In your post #71482 you said " It's because they can't defend their opinion. NOT ONE has given a reason to buy gold. " If I or anyone believed that the price of gold would rise and I could make a profit by buying gold would not that be a good reason to buy gold. Its a gamble and no different from any other stock purchase. Lorne