Want to have a run on the Euro?

To go with the excerable video I highlighted yesterday that has since been picked up a few places elsewhere is this pdf press kit (HT @Quarsan )


Not only is it filled with ripe absurdities like this piece of paranoia,

The folder contains open files related to this press kit as well as high- resolution images of euro banknotes and coins, images of people handling cash as well as footage on the production of euro banknotes. This material may be used for publication, but only for reports on the euro. You will be asked to sign the disclaimer to ensure appropriate use of the material.

To this,

The coins... have a European side and a national side, featuring a symbol of the respective country. As such, they subtly help people to identify more closely with the European Union, of which their country forms a part.

The single currency is a symbol of economic and monetary integration. It facilitates business generally and payments for goods and services abroad specifically. The creation of the euro area in a continent as disparate as Europe is a significant achievement.  Over 330 million people now use the euro
.
Ten years on, the Eurosystem has reaped the practical benefits of having a common currency, notably in terms of the cash cycle and banknote  procurement. The benefits – as well as the lessons learnt from this broad and deep collaboration – will continue to bear fruit in the future.

To this,

Yes, you are being invited to take part in a run on the currency.

ECB glorifies 10 years of the Euro : Timing is everything

This video has been made at some cost (looking at the graphics) to celebrate the 10th anniversary over the Euro notes and coins by the European Central Bank. It must be noted that the comments section has been disabled - I cannot imagine why.

The disembodied voice is placed somewhere of the coast of the Azores, and the whole thing is just utterly ill timed and ill-advised. It makes the priceless observation that the notes are 'thicker in parts', bit like the Eurozone.

What I have learnt from this is that until the 1st of March Drachma are still legal in Greece.

Chaps, don't get rid of them now for God's sake, you might well need them soon enough.

Questions to which the answer is No

Economic & Monetary Affairs >Commissioner Olli Rehn is in the States this week, and at the Brookings Institute he gave a talk today entitled,

Is the Euro Saved for Good?

He concludes his fantasy thusly

But let me be clear, the euro is not on the list of problems. Instead, it is an essential part of the solution. It contributes to growth by enhancing cross-border economic activity and competition, and is essential for macro-economic stability.
Lastly, let me recall that the euro is not just a technical monetary arrangement, but rather the core political project of the European Union. As such, it is a symbol of our political will and determination to work together for our common good.
That is a further reason why it is worth taking Europe seriously when we say that we are ready to do whatever it takes to defend the euro and financial stability in Europe.

Let us remember this, remember that the Euro is not at heart an economic project but a political one. As such it is, and will remain at odds with economic reality, and will always be vulnerable to asymmetric shocks.

Estonians go cold on Euro

More bad news for the Euro

TALLINN - Despite an agressive campaign to build support for the euro in Estonia, the most recent EU surveys show resistance to the common currency in well above 50% and growing.


The commission's report, based on a survey conducted in September, indicated that 58 per cent of Estonians were unhappy about the move. This was four percentage points higher than in May.

Estonia is due to adopt the euro as of Jan. 1, 2011.

Though really it is just bad news for the Estonians as they were never given a say as to whether to join. That they are doing so now is madness for them, and looking at the question marks over Estonian entry pretty dangerous for the EU,

European finance ministers backed Estonia’s bid to become the 17th country using the euro, overriding the European Central Bank’s warning that the Baltic state may struggle to keep inflation under control.

So tell me, didn't we learn not to stich up Euro entry after the Greek debacle? Apparantly not

Stressed? Maybe

I somehow don't think it was a coincidence that the much awaited banking stress tests result of 91 European Banks was set up for 18.30 on a Friday afternoon.

They must have been terrified the markets would get frit. As it was the Euro dropped severely during the day as rumpours (particularly about Spain) fed into the trading floors.

During the day the Euro rallied, but was last seen in a downward direction.

Euro falls as credibility of stress tests questioned

However the Euro spin meisters of Frankfurt now have the weekend to big up their figures

'The results of the test confirm the overall resilience of the EU banking system to negative macroeconomic and financial shocks, and are an important step forward in restoring market confidence,' the EC, ECB and the Committee of European Banking Supervisors (CEBS) indicated.

before the continents markets and most importantly London opens for business.

The problem is, is that the markets themselves do not seem to be convinced that the tests were authoratitive.

"Investors quickly deemed some of the tests' terms insufficiently onerous. As details of the test methodology trickled out Friday, the euro fell back from early gains to trade lower against the dollar. European bank stocks, strong during the week, retreated in New York trading."

There is more joy in heaven

So to that end I congratulate Sir Bryan Nicholson, chairman of the Financial Reporting Council who alone amongst a group of prominent business men contacted by the BBC has changed his tune on Euro membership.

Here is Sir Bryan back in 1996,

Sir Bryan Nicholson seems to enjoy mixing his metaphors as much as mixing it with the Eurosceptic wing of the Tory Party. Last night he was in flying form, deriding them as a flock of cuckoos transmuting into a plague of locusts. You get the general idea.

This is him yesterday,

"the balance of the argument has now shifted against the UK joining the Euro".

The BBC spoke to eight business leaders prominent in the pro-euro campaign and only Nicholson has changed his mind.

I can only ask, with Maynard Keynes,

“When the facts change, I change my mind. What do you do, sir?”

Whither Euro?

Anatole Kaletsky's comments hidden behind the Time's paywall today are depressing but oh so likley. The fact is that the political will within the EU has no intention of lettuingthe financial crisis ringdown the Euro, and the only other option is, as Kaletsky puts it fundamentally undemocratic.

"Voters must not be asked to give their verdict directly on the euro programme. Even assuming substantial fiscal convergence, German taxpayers will never vote for their money to be spent on supporting Greece, Portugal and Spain.
But luckily for the euro's survival, German voters will never be asked this question. The construction of a federal Europe has never relied on democratic support, merely on acquiescence and the force of habit. The creation of a viable single currency, backed by a European federal budget, will merely be the next stage of this non-democratic process."

Some straws in the wind that back up this dismal prognostication can be found today,

The outgoing Spanish EU Presidency will be remembered for overseeing the first steps towards a ''necessary and absolutely essential'' evolution from monetary union to economic union, Rafael Dezcallar de Mazarredo, Spanish ambassador to Berlin

He then points out the only problem with this is democracy,

However, he noted the lack of political discourse accompanying the proposals and acknowledged that a huge obstacle to achieving economic union remains – member state governments thinking in national terms.
''These substantial steps are still not accompanied by a clear political discourse, a
positive political vision – not only of what Europe is avoiding by doing this, but of what it can achieve: much more solid economic performance, a better capacity to compete with other parts of the world, an awareness that our economic interests demand common answers and in the end, something which will have inevitable implications towards political integration,'' stated the ambassador.

Of course minor issues like national democracy can always be overcome, after all they always have in the past.

Then we have Angela Merkle telling us,

"The federal government is aware of Germany's role as an example in the euro area. We have an essential interest in a strong euro, because a stable currency is indispensable for citizens' trust in the social market economy,"

Make no bones about it, she and the rest of them have no intention in failing in their manifest destiny to ensure a Euro fit for Government.

Has Berlusconi spoken too soon

It appears that Silvio has told an event at the OECD in Paris that,

Today we are coming out of the crisis. Unfortunately, as far as countries with the euro as their currency are concerned, we are also facing an international speculative attack on the euro,"
"We, the countries of the euro zone are united in replying with a multilateral response, which has practically defeated... this international speculative attack,

OK so the Euro has indeed risen a touch according to the FT, but this is nothing to do with the EU's response, more to do with the Chinese.

However, the euro began to climb again in early Asian trading after Reuters reported a Chinese government official as restating that Beijing’s foreign exchange policy would continue to include the purchase of euro assets.

Practically defeated... we will see.

Chaos and confusion in Greece hits Euro still further

At the last European Council of Ministers meeting, with the German's and French to the fore the Eurocrats thought they had finagled a way through the Greek Euro morass.

Seems like they forgot to tell Athens. Bloomberg report that,

The euro declined for a third day against the dollar amid speculation that a plan for Greece to obtain European Union and International Monetary Fund help in cutting its budget deficit may falter.

Meanwhile in a desperate action to steady the ship Reuters are reporting,

Greece is not seeking to renegotiate an EU-IMF safety net agreement, a senior finance ministry official told Reuters on Tuesday after media reports that the debt-laden country had wanted to amend the deal. "There is no request from Greece to renegotiate the agreement. There is a deal on the support mechanism and we are sticking to it," said the official, who requested anonymity.

If that is the case why demand anonymity? Why indeed. The bottom line is that the markets don't seem to believe it.

"an air of euro-doom"

Brendan Brown is head of economic research for Mitsubishi UFJ Securities so might be thought to have a clue about stuff. If he didn't he would be sacked. So his article today in Forbes is quite devastating,

"One year on from those self-congratulatory speeches by the European Central Bank's top officials at their monetary union's tenth anniversary celebrations, an air of euro-doom has filtered into the market-place.

For some, doom spells an eventual divorce in which Greece or another economically-distressed member of the union (EMU) breaks away. For others, doom has a deeper meaning of despair on whether there will ever be reforms to address the serious flaws in the union. A faint hope flickers that a divorce might be the catalyst to those countries which stay together implementing reform.

He goes on to go into the history of the Euro, both political and economic - forthere is no other way - and then flags up what he describes as three key errors in its creation,

Time or no time, his (Ottmar Issing) flawed monetary construction together with French-inspired euro-nationalism doomed the EMU in its first decade. Three big fateful monetary policy errors occurred.

First, immediately following the EMU's birth in January 1999, the euro-monetary bureaucrats slashed rates, arguing that actual inflation at 1% per year during the brief economic weak spell of 1998 was already too low. This action triggered a serious destabilising run on the new currency over the next 18 months, with the U.S. dollar/euro rate slumping from around 1.20 to almost 0.80.

Second, in 2003 the ECB lapped up to such an extent the prevailing IMF anti-deflation prescriptions in the global recession which followed the dotcom boom that legendary Bundesbanker Otmar Emminger would have turned in his grave! Amidst much fanfare, Otmar Issing unveiled in Spring 2003 a model-two version of the monetary framework including safety valves to prevent inflation ever falling significantly below 2% per annum.

This created a false vision,

"As financial markets warmed under the glow of growing monetary disequilibrium, bankers and investors in Northern Europe poured funds into the booming economies to the South. As euro-banking groups expanded at break-neck pace, excited euro-nationalists described the ever more glorious world of European integration. They ignored the already-to-be-heard warnings about a growing credit bubble.

In late 2003 the euro-nationalists, strengthened by the appointment of Claude Trichet to the head of the ECB, joined in an unholy alliance with Washington to launch an attack on the Asian dollar bloc. This added new force to the downward pressure on the dollar already falling under the weight of the Federal Reserve's aggressively easy monetary policy. In a state of alarm at the resulting rise of the euro, the ECB in 2004 put off any tightening of its own monetary stance.

The bursting of the credit bubble, starting with a series of credit quakes in the summer of 2007, led to the third, fateful monetary error. The ECB blocked risk-free rates collapsing to zero as would have happened under classical monetary rules. Instead the ECB actually drove risk-free rates higher out of concern that the oil bubble would cause the inflation target to be missed.

These three fateful policy errors have produced no political reaction. Whilst Professor Bernanke has had to face the hurling of "you are the systemic risk" by Senator Bunning or the success of Congressman Ron Paul's book End the Fed, European monetary incompetence continues in a sea of complacency".

He ends with some possible future but not one envisaged by the elite.

If the current Greek crisis spreads to Spain then the sea might divide. Towards preserving a monetary union of core members, Berlin would likely agree to the ECB fighting off any speculative onslaught against Italy (which unlike Spain or Greece has no underlying need for exchange rate adjustment). In return, Berlin would be in a position to demand real reform of EMU. As yet, the list of demands is unknown.

That might be reform, but who apart from Germany would be left to refornm in these circumstances?

Go read the whole thing

Soros questions survival of Euro

Of boy, this will set a few heatbeats fluttering,

The euro is being “severely tested” and “may not survive” the Greek deficit crisis, billionaire investor George Soros said.

The European currency’s construction is “flawed” because there is “a common central bank, but you don’t have a common treasury,” Soros said...
Soros predicted Greece will survive its fiscal crisis, “but it still leaves Spain and the other countries” facing similar difficulties. “And so either Europe now takes the institutional measures that are needed to make up for the deficiency or, in fact, it may not survive,” he said of the euro.

The point here isn't the truth of the statement, but the difficulty. He is quite right, for the Euro to work you need a single economic government. However, despite the slow 'death of frogs' that has gone on over the past few decades, I don't think that the peoples of Europe are prepared, yet to accept such a level, of control in Brussels.
The Germans are getting restless.

Is the Euro a "sub prime" currency?

Well that is the suggestion raised by this article in the National Post in Canada.

The euro has become another "subprime" currency, afflicted by debts, funny bookkeeping, regulatory failure and widespread street protests in Greece and Spain.

It maybe true, but the fundamental dishonesty of the creators of the Euro, that it was a sound economic project, rather than a hopeful political one has huge repercussions across theworld. As the article goes on,

There's likely too much hysteria over Greece, but not enough concerning Spain and Italy, which are also badly managed and collectively larger than Germany.

Spain's GDP -- about the size of Canada's -- shrank by 3% because it is the "Florida" of the EU. Its housing and banking sectors reel from a building binge to serve up condos, stores and infrastructure for the continent's Baby Boomer demographic. Others point to its unemployment rate of nearly 20% and its budgetary deficit of 11.4% of GDP, which prevents tax cuts or stimulus to kick start activity.

It all makes Canada and Australia, and our currencies, look pretty sound by comparison, but that's small comfort if the Americans and Europeans don't recover.

Lithuanian MEP queries Euro effectiveness

Not everybody, it seems is in love with the Euro, or sees it as the saviour in this time of crisis. Lithuanian MEP Eugenijus Maldeikis seems to think otherwise. Maldeikis, a rather serious chap in his former life (economist and former Chairman of Deloitte Touche in Lithuania, later Finance Minister,

claims that the euro sometimes without ground is presented as a universal remedy to overcome crisis. "During such a mess as it is now, adopting the euro would only intensify income problems,"

Well quite.

So why would anybody actually want to join the Euro?

From today's Telegraph,

Even the cleverest economist would find it impossible to come up with the right interest rate for Austria, where unemployment is only three per cent, and Spain, where it exceeds 12 per cent. How can Greece, where the recession is especially severe put up with the same interest rate as Holland, where the economy is far stronger?

The most logical option would be for Greece and Spain to leave the euro. If the situation continues to worsen, their electorates may ultimately demand nothing less.
The possibility of the euro breaking up under the strain of the present recession is taken seriously by the financial markets. The Maastricht treaty, which established the single currency in 1999, contains no legal route for a country to leave the euro. In practice, however, there would be no way of stopping a government from choosing this course.

But the costs imposed on any country leaving the euro would be overwhelming. The
markets would take fright and demand a far higher premium for holding the
government's debts.

Yet if the recession deepens, some European leaders could face this terrible conundrum. They can expect no sympathy from their electorates. By joining the euro, they chose to bind themselves in a straitjacket of their own design.

Slightly off note in time for the Euro celebrations.

In a surprisingly candid moment, Jean-Claude Junker, PM of Luxembourg and hyper euro-elite member talks about the Euro in the Figaro,

"Il est vrai que dix ans après l'introduction de l'euro on constate que cette zone euro présente un point faible : son faible potentiel de croissance".

Or in my cod translation,
"It is true that ten years after the introduction of the Euro we are aware thta the Eurozone has a weakness: its weak growth potential".

Given that tomorrow we are going to experience the horros of a full formal sitting and solemn celebration of the anniversary this is tantamount to blasphemy. Particularly given he is a speaker,

Celebrating the 10th anniversary of the Euro
Plenary Session, Strasbourg - 13 January 2009

9h55 - 10h00: Photo opportunity, Protocol Room

10h00 - 11h15: Official ceremony in the hemicycle
Historical video
Opening speech by President Hans-Gert Pöttering
Guest speakers:
Jean-Claude Trichet, President of the European Central Bank
Jean-Claude Juncker, President of the Eurogroup
Joaquín Almunia, Commissioner for Economic and Monetary Affairs
Concluding remarks and vote of thanks by Valéry Giscard d’Estaing, former President of the French Republic
Debate with the participation of Pervenche Berès, Chairwoman of the Committee on Economic and Monetary Affairs,
Werner Langen, co-rapporteur on the report on "The first ten years of Economic and Monetary Union and Future challenges", and the representatives of the political groups

European Hymn
11h30 - 13h00:
Colloquium on the "Role of the Euro in managing the economic and financial crisis"

chaired by Pervenche Berès, Chairwoman of the Committee on Economic
and Monetary Affairs, Room Winston Churchill
Invitees and guests speakers:
Joaquín Almunia, Commissioner for Economic and Monetary Affairs
José María Gil-Robles, former President of European Parliament
Karl von Wogau, MEP, former Chairman of the Committee on Economic and Monetary Affairs
Christa Randzio Plath, former Chairwoman of the Committee on Economic and Monetary Affairs
Jesús Martínez de Rioja Vázquez, director of the economic newspaper "Expansión", (Spain)
Isabelle Couet, Markets service of "Les Echos" (France)
Carlo Bastasin, editor of the economic newspaper "Il Sole 24 ore" (Italy)
Milan Buno, editor of foreign-economic department of Radio Slovensko (Slovakia)
John Thornhill, editor of the Europe edition of the "Financial Times", (United Kingdom)

This bottom lot are the 'grand plumes', the media, bought and sold.

Greece, and some thoughts

Ambrose Evans Pritchard has written a pretty doomy scenario surrounding the Greek rioting - which has continued today without abatement.

His thesis is that the economy is hamstrung by its membership of the Euro zone, a membership that was fraudulent due to statistical slieght of hand to allow Greece Euro entry.

Without wanting to rehearse all the pros and cons of euro membership yet again, or debate whether EMU is a "optimal currency area", there is obviously a problem for countries like Greece that were let into EMU for political reasons before their economies had been reformed enough to cope with the rigours of euro life - over the long run.

In the case of Greece, of course, Athens was found guilty by Eurostat of committing "statistical achemy" to get into the system - ie, they lied about their deficits.

Be that as it may. Greece's euro membership has now led to a warped economy. The current account deficit is 15pc of GDP, the eurozone's highest by far. Indeed, the deficit ($53bn) is the sixth biggest in the world in absolute terms -- quite a feat for a country of 11m people.

I asked a Greek colleague whether this was a reasonable overview of the situation back home. His response,

Yea, I'm sure he has his facts right ... but Greece cannot afford the political costs of leaving the Euro ... the people really will revolt if they have to go through all the inflationary changeover costs again .... and the EU cannot afford the political costs of bailing Greece out like Hungary (because then every one will ask for a bailout). Greece is stuck with the Euro and the Eurozone is stuck with Greece.

Do you have a paddle? Cos we're up shit creek and we don't have one

However he did want to point out one salient fact, one that by extension fills me with some foreboding,

"Statistical alchemy", says Ambrose.

True, but only becuase everyone else did the same thing. Especially in the Mediterranean. No government was prepared to stay out when its neighbours were going in.

If the Maastricht rules had been applied to the letter of the law, only Luxembourg would have qualified at the outset.

Britain to join the Euro This year?

Now here is a very interesting piece of speculation from Chris White of the Brussels newspaper EU Reporter.

But we have been tipped by a senior banker in Luxembourg that he economic crisis facing Europe “is bigger than anyone is prepared to admit”. “The banks are desperately short of money,” he added, referring of course to euro zone banks.

In short: the euro zone needs Britain. There couldn’t be a better selling point for a change of fiscal strategy than, coincidental, firstly with the arrival of the reform treaty as the EU constitution is now known – secondly with the onset of a campaign to put former British Prime Minister Tony Blair in the driving seat backed by Nicolas Sarkozy and Angela Merkel, the German Chancellor and the vision of former Chancellor Gordon Brown riding to the rescue of the euro. In a rather long-winded interview with the BBC’s Radio 4 Today programme recently Gordon Brown highlighted that the British economy was strong with a global reach while America was in recession and the euro zone unable to reduce interest rates because of galloping inflation.

This makes a fascinating backdrop for the highly controversial summit of the EU’s euro group made up of France, Germany, Italy and the UK to be held in London at the end of this month.It gets more interesting when, as we were told by the UK’s permanent representation to the EU, Chancellor Alistair Darling is “to host” a preliminary meeting in Paris the day after tomorrow January 17.

While the British media focus on the protests from other member states, particularly Guy Verhofstadt, the Belgian Prime Minister, at the ‘arrogance of four large member states’ meeting apart from the 23 other member states it is, perhaps, more interesting to consider the agenda. There isn’t one.

At least, the agenda, if fixed has not been announced. The official reason for the meetings is described as “in response to the global financial crisis how will we respond. It is also curious that no decision had been taken as late as tonight (Tuesday) on whether the President of the European Commission would be invited.

Chris Davies is one of the brighter British MEPs and he quickly changed his slant – if not his position – as we debated the issue with him. Keen to promote Britain’s membership of the euro he had done the research and highlighted the question of Gordon Brown’s five economic tests.

On the telephone to Strasbourg it was possible to sense Mr Davies’ brain whirring. He provided us with the five tests in a flash by email. They are:

Are business cycles and economic structures compatible with eurozone interest rates on a permanent basis?

If problems emerge is there sufficient flexibility to deal with them?

Would joining the euro create better condition for firms making long-term decision to invest in Britain?

What impact would entry into the euro have on the UK’s financial services industry?

Would joining the euro promote higher growth, stability and a lasting increase in jobs?

Well what about that then? The pound has dropped 10 percent against the euro surely making a switch more favourable? Leaving for the moment the second
question would joining the euro create better conditions for firms making long term decisions to invest in Britain? No company wants to invest in a country with volatile exchange rates. That one is a no brainer.

What impact would joining have on the UK’s financial services? EU legislation, introduced since the five tests were drawn up, allegedly in the back of a taxi by the then assistant to Brown Ed Balls, now govern all, or most aspects of financial services across Europe. The fifth question is subject to the fundamental reason for holding the Paris and London meetings in the first place. Both the UK and the eurozone are desperate to protect jobs and would be happy with simple, straightforward stability. But what of the second question?

Nicolas Sarkozy has been banging on recently about France having more control over EU interests rates and therefore over the European Central Bank. We have been reporting on this fundamental French position for ages but now the president has come clean.

The bank of England was given a questionable independence by Gordon Brown as Chancellor. As Chris Davies thoughtfully concluded: “Britain is the worlds fifth largest economy. If nothing else membership of the euro would put the UK within the world’s largest.”

He might have added that the UK has the second largest economy in Europe
after Germany. But as Gordon Brown said on the Today programme Germany has been, and still is, in recession.

Nicolas Sarkozy has famously told the French people to think like Anglo-Saxons and to speak English. France, as we have reported, is in a parlous economic state.

As we spoke Chris Davies suggested that opposition in the UK would be so huge that the idea we were presenting was fatuous. But then, professional that he is he pondered out loud on the telephone: “The Conservatives are fuzzy on the reform treaty. That issue has the Conservatives on the back foot. That issue has gone quiet. Gordon Brown needs some sort of fight. Joining the euro would take everyone’s mind off the constitutional issues.”

He disagrees that Tony Blair is favourite for the presidency citing Anders Fogh Rasmussen the former Danish Prime Minister as a more likely candidate. We
disagree. The EU may have changed but there is a long tradition of appointing candidates from large states to such new and important posts.

Besides, you don’t have to be an economist to ask where are the European banks and the eurozone economy without the fifth largest economy in the world. It would certainly suit New Labour to see Tony Blair, recently converted to Catholicism, as the first president of the EU and right now the negotiating chips are all in Gordon Brown’s pocket.

Are the Germans the most nostalgic people in Europe?

On the day that the Independent tells us just how marvellous the EU is, and even better how spiffing the Euro is now that Malta and Cyprus have joined the currency, (that is the political elite, you will notice that the people themselves have not been asked about it) we hear thatthe one in three Germans still keep the old Deutchesmark at home.

Six years after the introduction of the euro, a poll published Tuesday by the weekly news magazine Stern has found one in three Germans still hold deutschemarks for sentimental reasons in their homes.
On the day Cyprus and Malta brought the number of eurozone countries to 15, with a combined population of some 320 million people, a small number of the 1,003 Germans sampled in mid-December admitted to keeping over 500 DM (255 euros or 370 US dollars).
Germany's central Bundesbank has yet to place any time-limit on when it will stop exchanging marks for euros, having published in November 2007 figures showing over 14 billion DM were still in circulation, half in coins.
For the 34 percent who admitted to keeping the old national currency, however, nostalgia seemed to carry more weight than the current exchange rate.

Is that 14 billion marks is more than just nostalgia. Nostalgia would be a set of coins and notes not an entire banking system's worth.