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To: BubbaFred who wrote (64904)	6/13/2005 3:43:52 AM
From: GUSTAVE JAEGER	Respond to of 74559

Re: The easy analogy is Asia in 1998 or Latin America in the 80s. Their debt was denominated in dollars but their (weakening) currencies did not allow for enough exchange to make their payments. Told you so: Message 18604266

To: BubbaFred who wrote (64904)	6/13/2005 5:28:09 AM
From: GUSTAVE JAEGER	Respond to of 74559

Re: I am now more concerned than ever about the future of the European Union and the euro. It is not altogether clear what is going to happen, and such confusion brings contempt in the currency markets. Jun 11, 2005 SPEAKING FREELY The cloud over the euro By David Champeau [...] Thus far in 2005, the Federal Reserve has continued to raise interest rates, and at the end of June the Fed Funds rate will be at 3.25%, while the ECB is still "on hold" at 2%. The US dollar looks like it has made a bottom and is currently showing strength against the euro. Success does funny things. As the global economy has been recovering, the euro zone economy has been lagging the US economy. Growth is a low 1% or so in the euro zone and the politicians are screaming at the ECB to cut rates even further, while ignoring the fact that Germany has had two straight years of record exports in the face of a strong euro. The ECB is standing its ground, telling the national parliaments to enact market reforms so that the European market can become "dynamic" like the US. Meanwhile, the money supply in the euro zone is growing at a healthy 8-9% a year. This appears to be a classic example of a central bank that can control one thing (interest rates), but not two things (interest rates and money supply growth). In March of 2005, the European Commission relaxed the "standards" of the much-heralded Growth and Stability Pact, effectively ending any semblance of fiscal discipline in the euro zone. The euro promptly sold off on the forex markets. Jean-Claude Trichet, the benefactor of the Euro strength for two years, is now under extreme pressure to "do something" to promote growth in the euro zone. Now, in June 2005, we have the French and Dutch voting "no" to a EU Constitution. European politicians are in disarray. They want the ECB to bail them out. Germany is at a standstill as the majority of the population fear they could lose their jobs. There are calls from Italy to bring back the lira in a duel currency system. Tony Blair's government in England has called off the referendum on the EU Constitution. The EU Constitution looks dead. The EU project has hit a wall for now and the euro seems to be showing signs of a currency in trouble. Overall, the euro has followed a mercurial path. With the effective end of the Growth and Stability Pact and the EU Constitution, we will see just what the euro is really made of. It has gone through one complete cycle, from introduction to bear market to bull market and global acceptance. This is a big boys' game, and the currency market can be a cruel place. With the current 8-9% growth of the money supply, 1% economic growth and 2% interest rates, compared to the US dollar's 4% money supply growth, 3-4% economic growth and 3%+ interest rate, the euro is looking weak. The ECB talks hawkish and it seems that it would like to raise rates and slow down the money supply growth. But with the economies of the euro zone growing ever more slowly, the ECB's hands are tied. Maybe the "No" votes this month will be a wake up call for Europe. My German friends believe that Schroeder will be voted out of office this fall. So does the Economist magazine. Signor Berlusconi in Italy is also on the ropes after his party Forza Italia lost big in regional elections earlier this year. Tony Blair won for a third time in the UK but with a smaller majority and will do nothing to rock the boat. In France, Jacques Chirac is running around Europe trying to save what is left of the European project. Politicians all around Europe are circling the wagons and pointing their guns at the ECB to "do something". The pressure is mounting as the ECB's Trichet fends off talk about the demise of the euro. Booker T Washington once said, "I have learned that success is to be measured not so much by the position that one has reached in life as by the obstacles which he has overcome while trying to succeed." The Europeans have many obstacles that they must hurdle in order for the euro to continue to be a success story. Time will tell if they can do it. atimes.com