The strong Euro

Talk about missing the point here:

And just as her demand summed up the materialist greed of the Eighties, could a model falling for the European super-currency herald a new era? An era in which Europe makes a bit of a comeback, while America begins its decline? This is not to gloat. Having a much-fancied currency is tricky. While well-off Europeans buzz across the Atlantic to snap up Christmas gifts, exporters will struggle. Yet considering the number of obituaries written for the single currency by Eurosceptics, there has been silence now it finds itself the currency equivalent of a Vogue cover girl.

Sure, pro-Europeans were badly wrong when they predicted Britain would flounder outside the single currency, but Eurosceptics have already had much merriment throwing back those false prophesies. Jimmy Goldsmith and the flapping-white-coat wing of the Tory party were every bit as wrong, warning the currency would \’tear Europe apart\’. Perhaps it is time Eurosceptics showed a little of their noted British humility and admitted Europe is looking in perkier shape than they predicted.

The observation is in fact that a strong euro is what will tear the euro apart. Some, like Germany, will be able to deal with it. Others, like Italy, will not (probably). So to use the strength of the euro as an argument that all is hunky dory really does seem rather odd.

7 comments on “The strong Euro

  1. I see from the stats annex at the back of this week’s The Economist that Spain’s deficit on the current account of its balance of international payments is now 9.1% of its GDP and that Greece’s corresponding current account deficit is now up to 10.5% of its GDP:
    http://www.economist.com/markets/indicators/displaystory.cfm?story_id=10106824

    By those standards, America is doing quite well – its current account deficit is only 5.5% of its GDP.

    How well I remember John Monks, then general secretary of the TUC in Britain, going around in c. 1999 telling us about those wonderfully low interest rates they have in the Eurozone when he urged us to give up the Pound and adopt the Euro. Sure, those low interest rates would do wonders in stoking the house price boom in Britain. Curiously, John Monks subsequently became General Secretary of the European Trade Union Confederation (ETUC).

    Btw whatever happened to that review of the UK mortgage market that Gordon Brown commissioned from Professor David Miles?
    http://www.hm-treasury.gov.uk/media/3/C/miles04_470%5B1%5D.pdf

  2. I also note that (at least last month) that economist page put the deficit of the euro area at nil. Im not sure spains deficit is all that important. To an extent the argument linked to is right. When the euro was weak the antis said it showed the structural problems. Now its strong the same. For the vast majority of eu trade it has in fact meant there have been no currency issues, not something that could be said if it did not exist.

  3. Why the use of currencies as virility symbols anyway? There’s no such thing as a “strong” or “weak” currency; only an expensive or a cheap one. Of course, the external value of a currency is a proxy measurement of the economy’s health, but that can be distorted by other factrors and give a false reading. Petro-currencies are high-valued but often strangled other industries; high interest rates can raise the price of a currency but indicate underlying problems. The long-term stability of the currency, measured against a basket of traded currencies, would be the best measure, but would fail to act as a pseudo-nationalist flag to wave.
    In this present re-alignment of world trade, the dollar had to fall, and Asian currencies had to rise. For various reasons the euro (and gold) has been a refuge for fund-managers while working out what to do. We may see both euro and dollar fall at once.
    Internal EU trade doesn’t affect the euro’s value, but the national deficits/surpluses aren’t irrelevant, though not for the mercantilist reasons normally advanced. They may indicate other factors like long-term decline in competitiveness caused by deficit-financing by the government. These aren’t sorted out by the exchange rate, which would normally fall, but will be addressed in slow time by cuts in employment and wages. The workers will be screwed – and may not thank Brussels for having simplified trade within Europe.

  4. The €uro’s rise has indeed been meteoric, but one is reminded of Joe Kennedy’s tale that he knew it was time to get out of the market in 1929 when the shoe-shine boys were giving tips.

    Buy greenbacks.

  5. heaven help them on the left when they have to get their chops around the Euro collapse in the next couple of years.

    A nice little Sarkozy fudge on the measures for interest rates ain’t going to do in the medium term.

  6. Strong currency is all very well for consumers, but not so good for exporters, so it’s a bit simplistic to say a strong currency is a good thing. Anyway, the main argument about staying out of the Euro was giving up monetary control to the ECB, meaning our interest rates would no longer be set to suit the UK economy, but would follow whatever Europe decided, for good or ill. Strength or otherwise of the Euro against whatever currency you like doesn’t change that.

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