One of the reasons the Euro was weaker versus the dollar on Wednesday was concern and rumors that the Chinese government, a huge global investor, had decided to stop buying sovereign debt of European governments. In other words, they didn’t want to be exposed to potential losses that could arise if Spain or other countries couldn’t get their financial houses in order.
So, here’s the what the Chinese said, according to a Dow Jones Newswires report:
I am handing the quote of the day award to German Chancellor Angela Merkel, who was quoted by Dow Jones Newswires as follows:
“Speculators are our adversaries. First the banks asked for help, and now they are speculating against governments’ debts … I find that perfidious.”
Being accused of perfidy is strong stuff. I looked it up in the online Merriam-Webster dictionary. Synonyms include treachery and faithlessness.
Perhaps sovereign debt shouldn’t be subject to pure bet-placing, as is sometimes now the case, but blaming speculators and banks for the sovereign debt mess centered in Greece, but threatening to break out beyond that country’s borders, is a bit much.
Greece’s problems, a reasonable reader of the news is likely to conclude, is more the making of the country’s past elected officials and to a degree many of its citizens. Fiscal figures were in the past fudged. Tax payments rates are exceedingly low. Some civil servants enjoy(ed) pay and retirement perks that strikes an American, at least, as outrageous and clearly not affordable.
There also are the innate issues with the structure of the common European currency, the Euro, which creates a monetary union but not a political one with teeth to prevent a member nation’s fiscal profligacy.
And the leadership of Europe didn’t do itself any favors by dithering before getting serious about a Greek bailout. Many believe a debt restructuring will still be needed.
There’s plenty of fiscal profligacy to go around, including in the United States and United Kingdom.
Sure it’s true, markets have no collective conscience, but yelling at speculators is to avoid more basic problems. Yes, markets can quickly make a company’s or even a state’s financial situation unstable. But only if there was some fundamental shakiness to start.
Ask a child who broke a chair or drew on the walls or put cat food in shoes what happened, and they are liable to answer: “Dolly did it”.
Apparently dolly is also now to blame for what’s happening in Greece.
We have murmurings that Greece’s woes–the latest being the downgrade of its sovereign debt to junk by Standard & Poor’s amid worries about its financing risks and growth outlook–aren’t of its own making. It was the euro that did it.
Czech President Vaclav Klaus has been quoted in the German daily Frankfurter Allgemeine Zeitung as saying the real cause of Greece’s crisis lies in the euro and not the country’s economic policy. It is “the euro that causes this tragedy,” he’s cited as saying.
In a way it’s surprising that we haven’t heard more of this sooner. Greece’s problems, and the worries about others in the region, like Portugal and Spain, provide the perfect chance to hammer the euro-zone and the euro in particular.
Finance ministers in the euro-zone haven’t shied away in the past in complaining about the euro’s level. It’s either too strong, or too weak, but never just right. The European Central Bank has been much more relaxed about the euro’s level than individual countries, in part because its primary monetary policy objective is to maintain price stability; certainly it’s not indicated any inclination to intervene in the market to adjust the currency.
Finance ministers also tend to grumble about the difficulties of a unitary monetary policy system. Interest rates that suit one country may not suit another.
But that’s not what caused Greece to get into such a mess. Blaming the euro is like giving Greece a leave pass for all its silly mistakes.
Its problems came about in some measure at least because it fudged its fiscal position to gain entry to the euro-zone. That fudging continued after it joined, and allowed government officials for years to sweep the budgetary problems under the carpet and operate in an increasingly precarious position.
Greece ignored its own difficulties, no doubt hoping that if it closed its eyes it’d all magically disappear.
People can argue that an elevated euro hurt the country’s exports or that interest rates were too high (though the ECB has kept them low for some time), and this sorry episode has highlighted the issues of a union like the euro-zone where there is a one-size-fits-all currency and monetary policy, but the Greek tragedy is largely one of its own making.
We’ve woken up to a something new in the U.S. Treasurys market. It now looks more like the market in foreign exchange.
By that I mean a cat-and-mouse game between traders and a government entity constitutes at least one dynamic in determining trading action and prices.
For years, periodic government intervention to support a currency, sometimes concerted among a group of countries to achieve a common aim, has been a consideration for traders in the U.S. dollar, the Euro, the yen and other major currencies.
It was a lousy morning for the U.S. dollar in Asia following Friday’s broad-based rejection of the greenback. The euro climbed to the highest it had been in six weeks and among Asian currencies, the Korean won and the Singapore dollar hit six- and four-month highs, respectively, DJN’s Miho Nakauchi reported. The yen gained relative to the USD and EUR, reflecting selling by Japanese exporters on a post-holiday settlement day. USD bounced a bit as the day stretched on but affection for the dollar remains fairly tepid. Brown Brothers Harriman expects several more weeks of a weak USD followed by something of a rebound, reflecting what BBH describes as an improved U.S. economic outlook. Hmmm. In her “Money Talks” column today, DJN’s Ros Mathieson questions the notion of a revived American economy. She notes that the euphoria over “less bad” U.S. economic data is a tad absurd. “We’re so keen to put things in our ‘green shoots’ baskets that we could overlook the ongoing warning signals being sent by economic data,” she writes. Continue reading…
Citigroup’s Michael Hart does a nice job of laying out the reasons why “the USD’s role as the world’s pre-eminent reserve currency is unlikely to be threatened in the short term.” He argues that it will remain dominant for many more years even as the Euro becomes a more relevant back-stop. And he maintains (boldly) that the Chinese renminbi is poised only to become a regional (pan-Asia) trading currency; he doesn’t foresee a time in the near future that RMB will have reserve currency status – for reasons having to do with how Beijing’s bosses run China’s political economy.
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Tell It To Al – A Newswires Blog
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