Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelertoing Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Future of the Euro Currency in Question

Currencies / Euro Feb 21, 2010 - 06:07 AM GMT

By: Bryan_Rich

Currencies

Best Financial Markets Analysis ArticleAt the beginning of this year, I wrote a Money and Markets column entitled “Will the Euro Become the Most Hated Currency for 2010?

At that time, the euro/dollar exchange rate was about 5 percent off of its 2009 highs. And we were just months removed from hearing the constant and broadly espoused opinions suggesting the euro would become the world’s next primary reserve currency — replacing the troubled U.S. dollar.


But the focus of global investors was starting to shift …

Concerns were beginning to turn away from the “minor hiccup” of a debt-restructuring surprise in Dubai, and toward the fiscal deficit problems in the Eurozone — specifically Greece.

Meanwhile, the euro bulls were still beating their drums …

The overall consensus was still advertising the pullback in the euro as an attractive buying opportunity. In fact, the median forecast of 43 economists polled by Bloomberg was calling for the euro to trade at 1.51 to the dollar by the end of March (a little more than a month from now).

But as I pointed out in my January 2 column, this type of market scrutiny surrounding sovereign debt can snowball quickly. In short, these problems have a history of being contagious and spreading throughout the world.

With the euro falling another 5 percent, the dollar looks mighty good!
With the euro falling another 5 percent, the dollar looks mighty good!

Since then …

The dollar doesn’t look so bad! And the euro has dropped another 5 percent and looks increasingly vulnerable to a break-up, or at least a structural change, of the monetary union. To sum up, it’s a decisive moment for the future of the common currency.

No-Win Situation …

With Portugal, Ireland, Italy and Spain all under the hot spotlight and the Greek situation worsening, European leaders stepped in last week in an attempt to stem the negative pressure on the Greek bond market and the euro. They said they would support Greece — a verbal commitment to do whatever was necessary. Yet they gave no details on how.

Nevertheless, a bail-out of a fellow Economic and Monetary Union (EMU) member country is a direct violation of rules set forth in the Stability and Growth Pact, the principles upon which the euro was built.

When questioned over the past month, the European Central Bank and European leaders consistently rejected any notions of a bail-out. But it appears they’ve ultimately conceded to the danger that Greece is presenting to the stability of the monetary union.

Perhaps this is why …

The Bank of International Settlements shows that European banks have $2.1 trillion exposure to sovereign debt of the weakest EMU countries (Portugal, Ireland, Greece and Spain). And it’s my guess that that exposure has only been exacerbated by the European Central Bank’s answer to “extraordinary monetary policy.”

Instead of overtly buying their own government debt, as is done by the U.S., Japan, the UK and many other countries, the European Central Bank’s liquidity strategy was to provide unlimited easy money to European banks — unlimited 1-percent funds for one year.

What did those banks do with the money? They bought up sovereign debt of the weak-link EU members, i.e. backdoor quantitative easing.

Credibility Damaged …

Regardless of the outcome, the euro’s creditability has taken a major hit.

First off, the integrity of the EMU is diminished when fiscal constraints are ignored. Secondly, the enforcement of those policies has been exposed as unenforceable. So countries have no incentive to responsibly manage their fiscal situation.

Instead, they can simply take cover under the broader monetary union, without suffering an attack on their currency.

Irreparable Moral Hazard …

Europe cannot afford to rescue Greece.” — Otmar Issing
“Europe cannot afford to rescue Greece.” — Otmar Issing

This week, former executive board member for the European Central Bank, Otmar Issing, wrote an op-ed piece in the Financial Times. He warned against a Greek bailout and, further, questioned the viability of the euro.

Here’s what he said …

“Starting monetary union without having established a political union was putting the cart before the horse.

“Once Greece was helped, the dam would be broken. A bail-out for the country that broke the rules would make it impossible to deny aid to others.”

Confidence Broken …

Just as European leaders were trying to stem the tide of negative sentiment and the sense of urgency and imminence surrounding the Greece situation, the Greece Finance Minister said publicly that they’re trying to change the “course of the Titanic” … an ominous statement for a situation so central to the future of the euro.

Then to add to the Eurozone’s problems, a controversy recently broke out exposing off-balance-sheet funding that Greece engaged in through “special currency swap” agreements with Goldman Sachs and other investment banks.

Several Eurozone countries are under investigation for their currency swap agreements.
Several Eurozone countries are under investigation for their currency swap agreements.

These special currency swaps appear to have allowed Greece to hide debt to gain entry into the currency bloc in 2001. Furthermore, other weak Eurozone countries are now being scrutinized for participating in similar accounting shenanigans.

To Sum It Up …

I’ve warned repeatedly that following such a widespread global economic crisis, synchronized with a financial crisis, the looming damage and time bombs would likely linger.

That’s why I’ve been recommending aggressive, long dollar exposure and short exposure to those currencies most vulnerable to global financial market shocks.

The global economic crisis has left the Eurozone with uneven economic performance. Some countries are recovering, many are not.

And that means countries with damaged balance sheets and a bleak outlook for growth are stuck. With a one-size fits all monetary policy and currency, they lack critical tools to work their way out.

So you can expect more problems ahead for the euro.

Regards,

Bryan

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules