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View Full Version : The Euro - A doomed currency?


BlooMoo
13th Dec 2006, 10:13
When the Euro (http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2006/12/13/dl1302.xml&sSheet=/opinion/2006/12/13/ixopinion.html)was introduced I bet someone that it would last no more than 10 years.

Was that a good bet? If it does fall apart, how will it happen? What will be the tipping point and what will be the fallout?

BM:suspect:

woolyalan
13th Dec 2006, 10:40
Is the Euro failing? Seems ok to me! Is it possible to say what will be its downfall if it seems to be going reasonably well?

bigfatsweatysock
13th Dec 2006, 10:41
The article you link to appears in the Daily Telegraph, no big friend of the EU and it refers to the Italian Northern League who are very anti-EU and so it should come as no surprise that they would call for a return to the Lira. France has succesfully lobbied the ECB for limits to any further interest rate rises.

It should be borne in mind that the Euro is the first time in history that anything like this has been tried and there may be some bumps in the road in the first few years of it's existance. On a personal basis I have found the Euro to be a useful concept for moving around mainland Europe.

Too many countries have vested interests in the success of the Euro. It is unlikely it will fail.

I fully expect the Daily Mail Reader's Club to attack my point of view of course.

Spinflight
13th Dec 2006, 10:46
Where?

Good job we stayed out of it, would be interesting to see which self appointed economic experts tried to convince us that we simply had no choice but to join.

It hasn't done as badly as I thought it would, though there do appear to have been periods where it looked as though it could have. How many people could say they have more confidence in the Euro than Sterling?

Flip Flop Flyer
13th Dec 2006, 10:47
Unless you're also banking on the entire EU to collaps within the same 10 year timespan, I'd say it's a very poor bet.

And, no, if the UK should decide to turn it's back on Europe and disappear further up Dubya's hind end, that does not mean that the EU would cease to exist, however much the UK tabloids might lead you to belive it.

Now cue Draper and his usual anti-EU retoric, fuelled by the sub-standard reporting of all things EU from the tabloid mentioned by sweaty socks. (I personally refuse to speak or write the name of that rag!)

The SSK
13th Dec 2006, 10:52
I'd be prepared to bet that the will be around longer than the .

I'm a troll, fol-di-rol

Track Coastal
13th Dec 2006, 11:04
Crude Oil in Euros cost Saddam his place in the sun with the other US backed dictators. The price of Crude spiked up with a fall in the value of the greenback. Coincidence? No, inversely proportional.

Cheap[er] petrol? Get a currency thats more stable than the old 'falling empire' one.

tony draper
13th Dec 2006, 11:14
I have only one thing to add,**** the EU. :rolleyes:

AcroChik
13th Dec 2006, 11:16
"The price of Crude spiked up with a fall in the value of the greenback. Coincidence? No, inversely proportional."

You obviously have broad experience in FX and energy markets. Can you cite a source for this data, showing actual back-tested data rather than merely op-eds? I'd be gratefull.

Further, looking at currency markets, can you show that the relative exchange value of US$/Euro tracks movement in petroleum or other energy prices? Remember, we'd be looking for causality, not merely passing coincidence, so we'd want to look at a good bit of history.

For instance, earlier this year the price of petroleum fell by 22%. According to your thesis the value of the US$ would have climbed against the Euro. How much did it climb? And, which came first, the energy price move of the currency move? And can we show that the same pattern repeats again and again, proving a rule that plays out within known parameters?

If all this is true, I plan to be very very rich before the end of January.

Awaiting your insightful analysis.... And, thanks for playing!

(Please take your time doing the research, I'll be checking back in the New Year)

daedalus
13th Dec 2006, 11:25
Since when Spinflight? It fell relentlessly in value from the 1920s to the late 1980s.
Remember when there were 5 USD and 11 DM to the Pound? I do.
It only recovered (relatively speaking) when Gordon Brown stopped politicians from running the currency and gave the responsibility back to the Bank of England, where it used to reside.
Interestingly the German Bundesbank which made the Deutschmark one of the world's strongest currencies was set up after WW2 with US tutelage on the model of the Federal Reserve. 75 years previously the Federal Reserve had been set up to put an end to currency chaos in the US and was modelled on the independent - Bank of England!
The ECB was set up on the basis of the German Bundesbank with independence and the sacred duty of maintaining the value of the Euro. You could therefore say that the ECB is the latest Central Bank to be modelled on the original Bank of England and that the UK should therefore be proud of this, and the Euro.
Unfortunately this is not how the UK works, First we were told that the Euro coins were poisonous, then that the bimetal coins would fail when the bit in middle fell out. The Murdoch press did everything possible to slate the Euro - remember "Dim Wim"? Then we were told that the ink would rub off the notes. Ink (indeed the serial number DID rub off banknotes, but they were UK tenners!).
When the Euro hit a low against the Dollar we were told it was the end. Now it's 1.32 and I'll bet it'll hit 1.50 within a year.
We were told we would lose the everlasting tradition of the Monarch's head on banknotes. Everlasting tradition my backside - the first Monarch to figure on a British banknote was King George VI, the present Queen's father. Queen Victoria never appeared on a banknote (one suspects she would not have been amused).
Instead of looking at the positive side, the UK always sees the negative side. Her Majesty Elizabeth II is now the only European Monarch whose head does not appear on a Euro coin. What a pity.
:rolleyes:

Flip Flop Flyer
13th Dec 2006, 11:42
Daedalus

HMs Queen Margeret II of Denmark, King Carl II Gustav of Sweden and King Haakon of Norway might take offence to your last remark! Alirigth, so Norway is not in the EU, but it certainly is in Europe!

Otherwise, I agree fully. It's a sad state of affairs that one of the most admired nations in Europe is poisoned by what is probably the worst press in the world. Then again, a large number of people presumeably buy those rags, and thus one might argue that the UK press is merely an extension of the public opinion in the UK. Which is more sad, I don't know.

bigfatsweatysock
13th Dec 2006, 12:07
the UK press is merely an extension of the public opinion in the UK

Only because the tabloids tell the UK population it is so.

Track Coastal
13th Dec 2006, 12:41
its coincidence if you think so - you work the NYMEX?? :D :D

Hubbert's peak may be true, but bullish Light Crude speculators possibly believe that the USD is rubbish, its not what YOU think but they think (GOLD the great green toilet paper hedge). If you do not believe that some of the OVER price of oil is due to devaluation of the USD, you are misguided. OK OK, I said 'proportional' not quite, but heavily relevant.

..and yes I do and have speculated (remember $25). You NYers make me laugh:p :p . Your lessening of significance in international finance will be interesting to watch in coming years. At some time, the English will have to make a decision to stay with the USD which it increases every day or go with Euro if that goes higher with their increasing trade with East Asia.

TTFN *laughs* :ok: :ok:

frostbite
13th Dec 2006, 12:47
It will never be a worthwhile currency, if only because Gordon swapped tons of our gold reserves to buy billions of them.

Rainboe
13th Dec 2006, 13:01
It should be borne in mind that the Euro is the first time in history that anything like this has been tried and there may be some bumps in the road in the first few years of it's existance. On a personal basis I have found the Euro to be a useful concept for moving around mainland Europe.
Sweatysocks, I believe the US dollar was the first real currency to try this successfully. As the US States amalgamated, the currency worked. But even a few years ago in the last recession, the interest rates, whilst working fine keeping California under control, were driving the New England States and their rust-belt industries into a deep recession. So across a wide range of States/Countries, it is rare a single imposed interest rate will be right for the whole economy.

The Euro is fine now. When recession happens and interest rates fall or rise significantly, some Euro countries will be screaming blue murder. If interest rates rise as in the 70s, the Euro will self destruct as some economies feel the intense pressure of a 'one fits all' Europe-wide interest rate instead of being able to set their own to solve their own problems. That is when it will destruct, and that explains the success of the UK economy outside the Euro.

Tricky Woo
13th Dec 2006, 13:16
The euro's a fantastic success.

How do I know? Because I manage (amongst other things) a currency derivatives desk, and if the markets didn't think the euro was a safe currency then (a) I'd be seeing wider spreads and (b) we'd be making more money on the derivatives. Huh? Yeah, instability introduces far more opportunity for profit.

It's here to stay, mate. Interestingly, some of the non-euro European currencies (SEK, NOK) seem to be slipping down the league chart towards the abyss of 'second tier currencies'. GBP remains at the top of the currency food chain, a position it gained about 5 years ago as a result of the competent handling of interest rates by the Bank of England Committee. IMHO the best best best British monetary decision made in the 20th Century was the depoliticising of interest rate changes.

TW

nosefirsteverytime
13th Dec 2006, 15:05
Considering how very well the Irish are doing at the moment, with one of the best Govt. budgetary surpluses in years, I don't think the Euro is of any hinderance.

As far as the ordinary punter here is concerned, we don't miss the Punt Eireannach (pronounced "Poont Errannock")

tony draper
13th Dec 2006, 15:25
Well one is willing to be convinced ,if all prooners send a couple of hundred euros one shall test em out and report back.
:rolleyes:

Rainboe
13th Dec 2006, 15:56
When interest rates do eventually go up, the creaks and stresses will be most apparent in the Southern European economies- Greece, Italy, Portugal, perhaps even France, which has been living beyond its means. Once one of them seriously struggles, then decides it can no longer live under a 'one size fits all' Interest Rate, then the whole edifice will come under pressure. It's doing fine now- times are good, nobody is under real strain, but the budget deficits will come home to roost when the economies come under strain in recession. It wasn't long ago there was severe doubt about the viability of the Euro, and that was not even in a time of crisis. Any real crisis and it will burst apart- too many disparate States all wanting to do their own thing and too loosely held together.

tilewood
13th Dec 2006, 19:57
The euro will never work whilst the countries to which is belongs are just that.........countries. Unlike the USA Euroland is an artificial construct.

The stresses and strains of an exchange rate and interest rate that benefits
Germany and northern Europe at the expense of the Latin states including
France can only cause division and eventual breakup of the currency.

France will not readily accept the decimation of it's car industry, nor
standby and watch as EADS and Airbus are sacrificed on the alter of
the euro.

Rightly or wrongly, national pride, union power and sheer common sense
will ensure it's demise.

BlooMoo
13th Dec 2006, 22:06
TW - I understand and agree:{ with you're opinion of the current viablity of the Euro. It's strong for the mo and all the 'red-alert' signals are benign- at least compared to mid 2005. My bet is running out of time and I feel my bum twitching - you know the feeling. Was curious however on the appearance of the 'doomed' editorial in the tellygraf which seemed a bit ott given the current MM climate. Although ott is quite cool with me if it means there's life in my bet yet.

IMHO the best best best British monetary decision made in the 20th Century was the depoliticising of interest rate changes.

IMHO it is the politicisation of the ECB position that is the greatest risk to the Euro. De-Villepin in the last couple of weeks is potentially enemy-no-1 in that respect.

What you think?

BM:hmm:

daedalus
13th Dec 2006, 23:03
Neither Denmark nor Sweden are in Euroland. Nor is Norway, neither is Norway in the EU.
Sweden might yet join, Denmark will if UK does. Norway might yet join the EU.

:)

daedalus
13th Dec 2006, 23:09
Misread your post. You are quite right, HM Liz 2 is not the only monarch in Europe not to figure on a Euro coin. Still a shame though.:oh:

Sammie_nl
14th Dec 2006, 00:14
DK and UK have an opt-out on this issue. They could still join if they wanted to, they would have to re-negotiate the whole deal though. Sweden is different, they have the obligation to join the Euro (:}) but they have made it their policy not to meet the criteria for membership. They've done this through keeping their national bank under somewhat gov control (banned in the EMU) and not pegging their exchange rate. Rather nifty.

Slovenia is set to join the Euro in 2007, the other 9 new member states have the obligation just like Sweden to join the Euro, but all in due time once they meet the criteria. Whether the Euro can meet the challenge of a major slowdown? Possibly yes, it will put severe strain on the community. Weakest member at this point of time is Italy with a debt of around 110% GDP and a low rating in credit history. What would happen if Italy would default, no noe really knows, scary. The Huffing and Puffing of Villepin will hopefully change once a more sensible person that has an understanding of economics takes charge in France, but I doubt that their names will be either Royal or Zakorsky.

Personally I hope that the Euro will also be open to third nations, for example it was proposed that Iceland could join the Euro (not EU) only as they would benefit from a wider monetary base. Alas, two-speed Europe remains elusive


Thanks for allowing this Grolsh induced monologue, now back to the EU bashing gents :p

obgraham
14th Dec 2006, 00:29
Sammie, et al:
Question: what's to stop any country, in or out of the EU from adopting the Euro as its currency? Just pass a law and do it. Plenty of countries have adopted the USD as their currency.

Wangja
14th Dec 2006, 00:35
Crude Oil in Euros cost Saddam his place in the sun with the other US backed dictators. The price of Crude spiked up with a fall in the value of the greenback. Coincidence? No, inversely proportional.

Cheap[er] petrol? Get a currency thats more stable than the old 'falling empire' one.

Well, agreed 100% about pricing oil in EUR, and there's more coming. Think Iran and their plans to use EUR contracts.

Not sure about the inverse proportional bit and I doubt that overlaying the graphs would show that.

What is the "falling empire currency"?

Blacksheep
14th Dec 2006, 00:44
...nor
standby and watch as EADS and Airbus are sacrificed on the alter of
the euro. EADS and Airbus are being sacrificed on the altar of French zenophobia. As to the Euro, we acquired our Airbuses with U.S. Dollars. Global organizations especially find it useful to trade in any of the major currencies.

Sammie_nl
14th Dec 2006, 00:44
Short answer, it depends on whether you are a Member State or not. If non member states adopt the Euro the de facto currency, there is little the EU can do about that. I believe the Euro is a pretty save currency to bet on the Balkans and further afield.

Now if a member state would just make the Euro by law their legal currency they would get a hefty problem with the rest of the EU, and they would lack any legal voice in decisions in regards to the Euro.

If a country is a member state and it wants to join the Euro you have to meet the criteria of the European Monetary Union. From the top of my head they include
Max 60% of GDP in debt level
history of max 3% budget deficit
Independent central bank
Low level of inflation.
Stable exchange rate

With the introduction of the Euro only Luxembourgh really met all the criteria, the other 11 countries were allowed under certain levels of leniency. No such luck for the new member states, I believe Estonia missed the criteria by 0.1% on inflation.

BenThere
14th Dec 2006, 00:55
Another factor is that it has been shown that the core states, France and Germany will bend the rules to meet their exigencies.

As for the criteria Sammie-nl listed for joining, I don't think the US has met all of them for any ten year stretch in recent years. But our concept of sovereignty wouldn't allow such commitments anyway, even if they could be sold politically.

The Euro will remain viable so long as EU member states have the will and means to collectively support it. The answer to how long that will be is the subject of a good debate. My advice to the UK, FWIW, is to stay out of it as you have a strong currency of your own and the option to manage it as you see fit.

mini
14th Dec 2006, 00:56
If a country is a member state and it wants to join the Euro you have to meet the criteria of the European Monetary Union. From the top of my head they include
Max 60% of GDP in debt level
history of max 3% budget deficit
Independent central bank
Low level of inflation.
Stable exchange rate


True, but some of them told porkies to get in :E

Some of them are also ignoring the rules every year...

BTW, Kosovo adopted the Euro in '02, (had to because the DM vamoosed)

Aaaaaaaaaaaaaaaargh!
14th Dec 2006, 05:33
I wish my money was in Euros and not Dollars at the moment :(



There's a chance that I might get marooned over here. My life savings might not be worth too much in Euros or Sterling :{

The SSK
14th Dec 2006, 09:04
Sammie, et al:
Question: what's to stop any country, in or out of the EU from adopting the Euro as its currency? Just pass a law and do it. Plenty of countries have adopted the USD as their currency.

Monaco, San Marino and the Vatican use the Euro, having concluded agreements with the EU (they mint their own coins, but you won't find them in your change).

Andorra uses the Euro, and is in discussions to officially join. Kosovo and Montenegro use it unofficially. All of North Korea's international trade is in Euros.

Incidentally, when I toured Slovenia in 2002, every cash register I came across gave prices in Euros as well as Tolars.

frostbite
14th Dec 2006, 13:27
I wonder if it's part of Gordon's agenda when/if he becomes PM to suddenly discover the Euro meets his joining criteria, and be 'the man who took Britain in'?

nosefirsteverytime
14th Dec 2006, 13:33
All us Irish are egging ye to get in to the euro, by the way.

Would make things a lot cheaper for us I wager!