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The euro was the big loser yesterday, even when most other majors were able to either eke out gains or at least hold their ground versus the buck. Today the buck is higher versus the entire pack.
And today the euro presses lower for a whole slew of reasons. First, and most prevalent in the marketplace, is the continued uncertainty surrounding the bailout of Greece, from where and when and if it might come.
Headlines on Angela Merkel and Germany not abandoning its export advantages did the trick yesterday, naturally calling into question Germany’s role and commitment to helping save the European Monetary System from new trouble.
To take from Ambrose Evans-Pritchard again (thanks RS!), as I did in Tuesday Currency Currents, Merkel’s rebuttal “came as the IMF’s chief Dominique Strauss-Kahn said it was time for Berlin to rethink its single-minded pursuit of exports, warning that both Germany and China need to play their part in rebalancing the global system rather than relying on huge structural surpluses. "This must change. Internal demand must be strengthened with more consumption," he told the European Parliament.”
That desired shift of demand and idea of rebalancing is not new. The world’s been hashing over the needs for China to take major steps to help the globe rebalance. And we’ve mentioned a few times recently similar position in which Germany finds itself within the Eurozone economy.
It’s almost refreshing to hear the IMF speak out like that, but it’s not likely to change anything. Though the IMF may still have some influence on the next steps toward resolving this Eurozone ruckus.
Watching the nose cut off ... to spite the face?
Germany’s less-than-enthusiastic reaction to assisting in bailout efforts, plus Angela Merkel’s recent comments, could ending up hurting Germany’s economy, as it may show they’re ignoring an opportunity to rebalance. Assuming “unearned” responsibility for another country’s indiscretions, however, is not an appealing option and underpins one of the single-currency system’s major faults.
It kind of reminds me of (one of) the reasons I refused to join a Fraternity when I was in school – you’re committed to backing up your “brothers” at all costs despite the fact you have no control over their shortcomings or misdeeds.
I digress.
Anyway, here’s what else is prompting the turn towards IMF assistance, from Reuters ...
Prime Minister George Papandreou told the European Parliament that draconian austerity measures announced by his socialist government showed it was committed to the stability of the euro and would carry out necessary structural reforms.
"But if we keep borrowing at very high rates, and this is the challenge we have, we cannot sustain the deficit reduction that these hard measures aim to achieve," he told a committee of the EU legislature.
"We should be able to borrow at rates that are normal." |
Let me ask, George, do you mean you should be able to borrow at Germany’s rates; is that what you consider “normal?”
Funny.
The chart at the right shows the widening spread between Greece 10-year government bonds and German 10-year government bonds.
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