Citing Nomura’s Global Macro Strategy group “Tyler Durden” of ZeroHedge pronounces the euro dead:
Nomura’s Global Macro Strategy group tackle the problem that is now abundantly clear the euro area as currently constructed is not stable and so it will have to change (hence, the Euro is dead!). The direction of travel is being set out by northern European politicians and is worth noting – more Union not less. But two points are critical to note; first that the new euro area may be so different from the one the current members signed up to as to make a process of voluntary re-application for euro stage II necessary to determine future membership, and second that any new variable geometry euro will take a long period of time to set up. How then to cover the intervening period?
I think that “more union” will be politically impossible as long as German nationalism attributes the country’s prosperity to thrift and hard work and the poverty of the EU periphery as due to their being spendthrift layabouts. For goodness sake until forty years ago Greece was ruled by a German prince as had been the case for most of the period after it gained its independence from the Ottomans 180 years ago. If the country was maintained as a sort of classical theme park while the rest of Europe industrialized, whose fault was that?
To be honest I think the pronouncement is premature. Undead would be a better characterization. The euro will have the ability to walk around and live by draining the blood of the living for a long time to come.
Educate me on this if you have a moment: why is the Euro still trading at 135 USD? That’s nowhere near its low, and it does not seem to be dropping precipitously. If the consensus is that the Euro is either dead or dying, shouldn’t it be dropping like a rock?
I can’t tell you what traders are thinking but I can give you my take. The European Economic and Monetary Union has a population 10% larger than the U. S. and a total economy nearly as large. Fiat currencies like the dollar or the euro don’t cause more production; they denominate it. As long as the Europeans are willing to distort their economies in the interest of propping up the euro, they can do it and they have a lot of economic clout to do it with.
Until very recently European leaders have been unswerving in their support for the euro and, when recently there was a bit of teetering, they were quick to walk it back. As long as they’re willing to do it, they can prop up the euro, with increasing damage to their economies.
That’s what I mean by “undead”.
Gotcha. Thanks. I’m reassured. My foreign rights sales are denominated in euros. As with most world events, it’s all about me.
To somewhat oversimplify the situation, there are two eurozone breakup scenarios: (1) the “thrifty” north (i.e., Germany) exits, or (2) the “spendthrift” south exits. The market seems to be betting that (2) is more likely than (1). If so, the euro gets stronger, as the finances of the thrifty north will no longer bear the burden of keeping the spendthrift south above water.
Take anything you read from ZeroHedge as being the opposite of what to expect. They have a very poor understanding of money.
“Educate me on this if you have a moment: why is the Euro still trading at 135 USD?”
Here’s the thing: currencies are valued on the foreign exchange market by demand, and the one thing Europe itself has at the moment is major demand for their own currency. Greece and Italy can’t pay their debts because they can’t get their hands on enough euros, for example. So there’s a big spike in “domestic” demand for the euro offsetting weakening demand for euros in foreign markets. Meanwhile the Germans would rather have a proctologist named Dr. Hook than print more currency. Europe is right on the edge of a deflationary spiral.
There’s an awful lot of currency manipulation going on. Look at the chart buried in this article. CRUNCH.
Icepick
That’s a pretty good chart. I didn’t realize Italy’s money supply was that low.
I had no idea that had happened either, though to be fair, who looks at M1, M2 and M3 charts for various nations on a regular basis?