The Dutch EU presidency seems to be putting the finishing touches to the summit preparations for 15/16 December. One of the major items on the agenda: decision time on opening negotiations with Ankara about Turkey’s EU membership.
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Author Archives: Edward Hugh
Central Bank Blues
In a fairly ironic and cryptic post yesterday I alluded to the potential influence of the Russian central bank on the value of the euro. This situation is not to be taken lightly. The euro today hit another record passing the 1.32 to the dollar mark. At the same time business confidence index readings from Germany and Italy indicate that those who need to export are none too happy about the future.
A Russian move to raise euro reserve holdings from 30% to 40% of the total, mentioned as a possibility in an FT article yesterday, could have profound consequences:
Neil Mellor, currency strategist at Bank of New York, raised the prospect of a potential domino effect: ?Talk of central banks readjusting their reserves to encompass a greater euro weighting has been rife in the foreign exchange markets for quite some time, along with speculation that OPEC members may shift to euro-denominated oil sales.
?A dam can only take so much pressure. Russia?s stated intent to review its reserve weightings, in favour of the euro once again, could well lead to similar announcements by its counterparts across the world.?
Source: Financial Times
So the danger is that if Russia initiates others may follow. A fall in the dollar’s value of say 30% over 3 years would be one thing, but a rapid fall of this kind of magnitude precipitated by a shift in central bank holdings over a limited time horizon would be quite another. This is definitely one to watch.
Yukos And The Russian Oil Card
The Financial Times is reporting that all senior executives of the Yukos oil company have left Russia. The FT suggests they fear for their safety amid a flurry of arrest and search warrants issued by Russian prosecutors for oil company managers.
?There is not a single member of the management board left in Russia at the moment,? a person familiar with the situation said on Wednesday. Yukos, which has been crippled by tax claims of over $20bn (?15bn) and faces the forced sale of its main production asset, is now managed by remote control, according to the person.
Source: Financial Times
Ukraine in Pictures
Well Yanukovich has finally been declared the winner. Since someone else is undoubtedly about to post about this I’ll leave it at that. But while we all wait to see what happens next, can I recommend a viewing of the reuters photoslides. I think in many ways these photographs tell a story of their own.
Clearly the scenography of snow and orange lend the images a very special quality, that and the sombre uniforms of the special police, with all those young eyes peering out through the gap beneath the visor. The images of young girls offering them flowers are also reminiscent of earlier epochs – like Prague 68.
These images as also historic. In some ways we are probably approaching the end of something (whatever happens next). I doubt we will see too many more scenes like this on European soil at least. It seems as if a process set off by another group of silent protesters in another city in another country some 15 years ago may now be about to enter its final stages.
Wicked Thoughts Department 1
As Nick notes in an earlier post Barroso and Solana have both been voicing their concerns about what is going on in Ukraine. Barroso has also issued a scarcely veiled threat about possible consequences. (Come to think of it, a strong stand on Ukraine could be one way of recovering some authority after the bruising he’s been taking at the hands of the MEPs). So I ask myself what has the always (even to the point of cynicism) pragmatic Putin got to trade?
Well he could try suggesting that the Russian central bank put a hold on its plans to convert some more of its reserves into euros. Preposterous suggestion, probably. Doable in the modern world of realpolitic, certainly. The irony here is that there were undoubtedly some people around at the time of setting up the single currency who thought that this ‘achievement’ of central bank reserve status was going to be a thoroughly good idea.
Onwards And Upwards We Go
It’s no secret that the euro is now hitting record highs in its exchange rate with the dollar. It is also pretty apparent that some EU leaders are becoming rather preoccupied about the consequences of this for those eurozone economies which are driven by exports. What is much less clear though is what can be done about it.
The dollar early today was trading at $1.3065 per euro in Tokyo, signalling that the $1.30 psychological threshold may now lie behind us. Some experts are suggesting that the ECB would be reluctant to see the euro rise above $1.35, but since what is happening is more a dollar slide story than a euro rise one it is hard to see what they can effectively do about the situation.
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Google Does It Again
Google yesterday released free software that lets you simultaneously search the Web and your PC hard drive for information. You can download here. This time it will be Microsoft and Yahoo who will be fuming in the back office.
What all this new Google stuff does seem to be exciting is some controversy about the privacy issues. Any thoughts anyone?
Old Rivalries?
Juan Cole had an interesting post on Informed Comment yesterday.
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Germany’s Jobs Woes Continue
With unemplyment currently running at a five year high of 10.7%, yesterday’s news that GM/Opel and KarstadtQuelle are to reduce employment further (‘Germany Loses 15,000 Jobs in a Day’ was the Bloomberg headline) could hardly come at a worse time. There is plenty of evidence of the long promised restructuring, but little of jobs growth. ‘Jobs churn’ US style does require the two halves of the equation to at least balance.
The future does not look inviting. The FT puts it as follows: “KarstadtQuelle?s problems have been exacerbated by the extreme reluctance of Germans to increase consumer spending.” Actually I have been arguing that this ‘extreme reluctance’ isn’t simply shyness, and that there are clear structural reasons why this is the case.
At the same time continued downward revisions on the global growth outlook following the oil ‘spike’ mean that export driven economies like the German one can expect little relief on the global demand front (ECB president Jean-Claude Trichet is the latest to warn on this front, changing the banks emphasis earlier in the week to slow growth rather than inflation as the main concern).
Again – in a kind of ‘euro lament’ – Bloomberg sums up a rather bleak week week like this: “At least eight reports in the past week signaled slowing growth in the $9 trillion euro economy. The pace of expansion at manufacturers and service companies cooled, retail sales declined and industrial production in the region’s three biggest economies dropped more than economists forecast”.
To put all this in perspective, I think it is worth remembering that only six months ago most commentators were anticipating that we would now be entering the vigourous upswing of that long awaited recovery. As it is almost all the indicators seem to be pointing towards negative.
Euro-zone: A Default-free Area?
This is the interesting question that Morgan Stanley’s Vicenzo Guzzo asked a couple of weeks back. The key background details in question are what are known as the cross-country risk spreads. Now this may seem like a piece of technical obfuscation, so what exactly does he mean?
Well, one of the main consequences of the introduction of the euro has been the dramatic reduction in what are known as the ‘interest rate spreads’ on sovereign debt.
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