Roberto Maroni is back in the Italian press again today, and with another interview. This interview is in ilResto del Carlino. (Interestingly enough they are running an online poll, and the result was running at 51.7% euro to 48.3% lira). Unfortunately the interview is in Italian. I have translated a few extracts under the fold. The big issue that he draws attention to (and I was flagging this in an earlier post) is the apparent desire of Berlusconi not to commit himself if he can help it.
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Tag Archives: the euro
‘Euro Overvalued’
The euro is apparently overvalued. Actually I happen to agree, but today this opion comes to us from a most surprising person: Luxembourg Prime Minister Jean-Claude Juncker, at this point in time President of the European Union. Now I am surprised by this, since he is neither Economics commisioner, nor spokesperson for the ECB, so I am not clear why it is he feels himself compelled to express an opinion.
Really this just highlights the fact that the institutional labyrinth we have created is such that not even those who administer it have sufficient clarity about who is responsible for what. In theory his press conference was about the forthcoming budget negotiations, but judging by what he said, I’m not clear he got round to reading that memo from Barroso about maintaining a sense of calm.
Luxembourg Prime Minister Jean-Claude Juncker, who holds the European Union presidency, warned on Friday that failure to agree on a new long-term EU budget this month would turn a political problem into a full-blown crisis.
Juncker, who also chairs euro zone finance ministers, said the single currency shared by 12 EU countries had been weakened by the “No” votes to the European constitution in France and the Netherlands but was still overvalued compared to the dollar.
“A failure on the financial perspective (budget) would turn the big European difficulties (after the referendums) into a big European crisis,” he told a news conference.
“As a result of the referendums, the euro is weakened. What helps the economy for the moment could in the long term become a burden,” he said, adding: “I think the euro is overvalued in relation to the dollar.”
He also informed the press that he would resign as PM if, as expected, the Luxembourg referendum voted ‘no’ on July 10. Anybody seen an actual Luxembourg poll recently?
Italian Referendum Call
But in this case the vote would be about Italy’s continuing membership of the euro-zone, rather than the EU constitution. Now before going any further, I feel the need to advise extreme caution in the face of such developments.
In the first place the call comes from the Italian Labor Minister – and member of the separatist Liga Del Norte – Robert Maroni: It was made in an interview published by the Italian newspaper La Repubblica. He was not making a statement on behalf of the government, he was in all probability ‘electioneering’. (See Fran’s post: those politicians).
On the other hand, Berlusconi is pretty vulnerable at the moment, remember he has just put together a new coalition, and elections are coming next year.
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ECB Holds Rates at 2%
The European Central Bank held its main refinancing rate constant at 2% for the 24th consecutive month this afternoon. No real surprise here. Perhaps the most revealing comment has been: “Whether others like it or not, the ECB isn?t an activist central bank,? a view offered to the Financial Times by one Julian Jessop, economist at Capital Economics.
The FT also points out that: “the 5.5 per cent slide in the euro to $1.226 against the dollar since the ECB?s last meeting may have done some of the Bank?s work for it. The weakening of the euro is stimulative to growth in the same way a rate cut would be, and, if it persists, is likely to be an upward drag on eurozone inflation“.
We will see. The euro has had a much calmer day today, clawing back this morning most of the ground lost in hectic trading last night. It is currently going for around $1.2279 in a fairly volatile afternoon.
The – oh they’ve all gone quiet over there – European Commission seems determined to sit things out till the June Summit, while Barroso appeals for calm:.
“?What I am asking for now is that political leaders, in particular government chiefs, not take individual, or unilateral decisions. I ask political leaders to show responsibility, to show caution”
Jean-Claude – into the valley of death rode the 600 – Juncker, Luxembourg’s prime minister and holder of the rotating EU presidency, continued to insist ratification should go forward as planned. Since Luxembourg is to have the next scheduled referendum, it will be interesting to see whether he in fact leads the troops more than the statutory ‘half a league’.
Europolitix has it that behind the scenes (and this is really the problem about how we do politics in Europe) a revolt is brewing amongst those who would be asked to follow Junker’s noble sacrifice: Poland, Denmark, Ireland, the Czech Republic, and, of course, the UK.
Another ‘euro’ sceptic
Bloomberg’s Mathew Lynn has been pretty consistently skeptical about the workability of the common currency. Personally I find it difficult to disagree with the following:
“The euro, the common currency shared by 12 EU nations, will weaken considerably as Europe enters a long period of political instability. Recriminations from the collapse of the constitution will be played out over months, not days.
And the economics of integration that have dominated Europe for the last 30 years have come to an end. Forget convergence. The big trend in the next few years will be Europe’s economies going their own way, not with each other. In time, even the euro’s survival might be called into question.
“The initial reaction might be relatively muted because the markets had already discounted `no’ votes in both countries,” said Stuart Thomson, a fixed-income strategist at Charles Stanley Sutherlands in Edinburgh. “What it does do is put a stop to any thoughts of fiscal integration, because that was really the next step of the process. Without that, it is difficult to see what is underpinning the euro.””
Twenty Twenty Vision
The press this morning are busily assimilating the result of yesterday’s Netherlands referendum. The FT reports on a survey by Dutch polling organisation Interview-NSS, which identified up to twenty different issues which influenced the no vote.
Top of the list the list was a fear that the Netherlands would lose influence in a Europe that would favour large countries.
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Another Day On Euro Watch
I’ll keep tracking the euro again today, and updating as appropriate. I’ve just posted some stuff in the comments section of Afoe:
Looking at the newspapers the euro steadied up overnight, but seems to be on its way down again in Tokyo. As I write it is trading at $1.2194, ten minutes ago it was 1.2186.
Firstly during the night the dollar firmed:
“Against the euro, the dollar fell to $1.2211 at 9:50 a.m. in Tokyo, from $1.2179 late yesterday in New York, according to electronic currency-dealing system EBS. It was also at 108.64 yen, from 108.76. The dollar traded as high as $1.2160 per euro yesterday, the strongest since Sept. 20,”
Bloomberg.
The general consensus seems to be that the euro will rebound, since that is what the technical charts say it will do. Be these are not ‘normal’ trading circumstances and this view may not be appropriate.
Strategists at National Australia Bank hold what seems to me a reasonable perspective:
“Barring news of a sharp slowdown in the US, the euro is set to test 1.2000 and then 1.1760, the NAB strategists said, adding that the market focus is now turning to US non-farm payroll data for May to be released on Friday”.
I think we are in the hands of events, with a definite downside risk on the euro. So lets wait and see how they unfold.
Update 1: 9:30 CET. The euro is now staging a strong rally $1.2260 at the time of writing. Among other factors which may be affecting this is a speech by Dallas Fed President Richard Fisher which suggested the Fed tightening cycle may be nearly over. This is being widely interpreted as Greenspan testing the water. It is also something I have been arguing for the last couple of weeks: Europe’s weakness is now setting limits to monetary policy in the United States.
He Would Say That Wouldn’t He II
In some ways I think this story may run and run over the months to come. Bloomberg have an update on their earlier article. According to the latest account:
1/. The German Finance Ministry have declined to comment on the Stern report that discussions took place last week between Finance Minister Hans Eichel, Bundesbank President Axel Weber and various economists on a possible failure of European Monetary Union.
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He Would Say That Wouldn’t he
For those who are not old enough to remember, these are the immortal words of Mandy Rice Davies.
Now throwing a link quickly back across the Atlantic, Dave Altig at Macro blog picked up my ECB post and added a response from Hans Eichel.
But, the plot does thicken a bit.
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ECB: Just Look At This!
I had promised a quiet day. I may have to eat my words. Look at this on the euro, and remember my post yesterday.
The currency also weakened after Germany’s Stern magazine reported German Finance Minister Hans Eichel and Bundesbank President Axel Weber discussed a possible failure of European monetary union. The euro is off to its worst start of a year since 2001, down 9.3 percent compared with the dollar.
“This is extremely bad timing and has undoubtedly compounded euro selling,” said Monica Fan, head of global foreign-exchange research at RBC Capital Markets Ltd. in London.
The euro retreated from as high as $1.2341 after the magazine said Eichel and Weber, who represents Germany on the ECB’s policy committee, discussed the euro’s potential failure with economists. The magazine quoted Joachim Fels, chief fixed- income economist at Morgan Stanley, who took part in the meeting. Fels declined to comment.
“We can neither confirm nor deny” that a meeting took place, said Bundesbank spokesman Wolf-Ruediger Bengs in a telephone interview. “We hope to issue a statement shortly.”
This is incredible stuff, and that it is breaking in the press must also be indicative of something. I go back to my post last week. It seems what I suggested is right: the ECB is deeply divided, and this ‘quietism’ and the policy of twirp is causing alarm in two important economies (Germany and Italy). This is not the end of the euro, but this discussion could mark the begining of the end. It all depends on how rapidly events unfold, and how long ‘ostrichism’ prevails in Frankfurt and Brussels.
Postscript: I am following the evolution of the Euro/USD over at our other page: A Few Euros More.