Most Popular
1. Dow Max Drawdown Bear Stock Market 2022 - Accumulating Deviations from the Highs - 21st Feb 22
2.Putin Starts WW3 in Ukraine, Will Use Tactical Nuclear Weapons, China Prepares Taiwan Blitzkrieg - 28th Feb 22
3.World War 3 Phase 1 - Putin WINS Ukraine War! - 25th Feb 22
4.INVESTORS SEDUCED by CNBC and the STOCK CHARTS COMPLETELY MISS the BIG PICTURE! - 10th Feb 22
5.Will There Be A 2024 US Presidential Election? - 3rd Mar 22
6.Gold and SIlver, Precious Metals Sector Is at a Terrific Buy Spot - 6th Feb 22
7.Why Putin Wants the WHOLE of Ukraine - World War 3 Untended Consequences - 6th Feb 22
8.Dow Stock Market Expected Max Drawdown 2022 - 19th Feb 22
9.Stock Market Calm In the Eye of the Inflation Storm - 4th Mar 22
10.M = F - Everything is Waving! Stock Market Forward Guidance - 7th Mar 22
Last 7 days
Britain's Hyper Housing Market - 27th May 22
Lower Copper price due to Chinese lockdowns is only Temporary - 27th May 22
How the United States Conquered Inflation Following the Civil War - 27th May 22
Greater Depression Now!? - 27th May 22
Stocks: Is the Really Scary Part Just Ahead? - 27th May 22
The Dark Side of the Internet - Cybersecurity - 27th May 22
Why Ray Dalio is WRONG About China - Principles for Dealing with the Changing World Order - 24th May 22
Globalists Convene to Plan Central Bank Digital Currencies - 24th May 22
After Recent Highs, What’s Next for the Gold Junior Miners? - 24th May 22
Why APPLE Could CRASH the Stock Market! - 21st May 22
Why Is Crude Oil Ignoring US Inventories? - 21st May 22
Here is Why I’m Still Bullish on Gold Mining Stocks - 21st May 22
THE INFLATION MEGA-TREND QE4EVER! - 20th May 22
US Real Estate Investors – Is There An End In Sight? - 20th May 22
How Technology Affected the Gaming Industry - 20th May 22
How To Set And Achieve Reasonable Goals For Your Company - 20th May 22
How Low Could the Amazon (AMZN) Stock Price Fall? - 19th May 22
Bitten by FANG? Clocked by Cryptos? -- 'Air Pockets' Everywhere - 19th May 22
Northern General Hospital Orthopedics Fractures and and Ankle Clinic Consultations Real Patient Experience - 19th May 22
Cathie Wood Goes All in on Teladoc, ARKK INSANE Noob Investing Strategy! - 17th May 22
This is Anything but Positive for US Housing Market - 17th May 22
What Should We Do If There Is No Fed Monetary Policy Pivot? - 17th May 22
All Possible Ways to Earn Free Litecoin - 17th May 22
How low Could the Amazon Stock Price Fall? - 16th May 22
Cathy Wood ARKK INSANITY There is NO Coming Back! - 16th May 22
NASDAQ 100 Stock Market LOWER LOWS & LOWER HIGH - 16th May 22
Sanctions, trade wars worsen US inflation - 16th May 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Euro Crisis a Death by A Thousand Day Trades

Currencies / Euro Apr 30, 2010 - 08:47 AM GMT

By: Christopher_Quigley

Currencies

Best Financial Markets Analysis ArticleLabour unrest, collapsing employment, bankrupt public coffers, riots and sovereign debt default.

This all might seem unexpected however in 1995 a former European Union economist Bernard Connolly foretold it all in his classic book “The Rotten Heart of Europe.”  Connolly was hounded out of his elite job for telling the truth about the lies and obfuscation regarding the ERM (Exchange Rate Mechanism), the forerunner of the Euro. He knew that his instincts and training as a professional economist were telling him that the Euro would be a disaster for Nation States yet he was not allowed to articulate his genuine concerns.


“As we shall see, in France the long arm of the authoritarian state has pressurized dissident economists and bankers, deployed financial information programmes on international TV channels, threatened securities houses with loss of business if they questioned the official economic line, and shamelessly used state-owned and even private-sector banks, in complete contradiction with their shareholder’s interests and Community law, to support official policy. ………. The economic profession in Europe organized literally hundreds of conferences, seminars and colloquia to which only conformist speakers were invited; and the Commission’s “research” programmes financed large numbers of economic studies to provide the right results from known believers.”

Connolly goes to state the essence of his book:

“My central thesis is that the ERM and the EMU (European Monetary Union, the mechanism with ultimately brought the Euro into technical existence) are not only inefficient but also undemocratic: a danger not only to our wealth but to our freedom and ultimately, our peace.”

As the current crisis unfolds we are just beginning to see the flaws in the Euro system that Connolly foresaw. Under the regime yes we have stable exchange rates between the Euro countries but there is no harmony between the disparate economies that make up Euroland. For example when it comes to borrowing “sovereign debt” each country is on its own. This last week Greece had to pay 18% on two year money whereas Germany had to pay only 3% approx. Where Greece has gone Spain, Portugal and Ireland are soon to follow. The technical makeup of the Euro is being brought into the glare of the light of day and business functionaries do not like the weaknesses they see. The idea that the Euro has a “central” bank has thus been exposed as a myth. If the Euro actually had a real central bank the sovereign nations of the European Super State would be able to borrow under its aegis, they cannot.

This means the Euro is not a “currency” as such but in actual fact is an exchange rate mechanism only.

Thus it is a political entity not an economic one. The fact that Germany “cannot assist” Greece in these crises while the Euro burns indicates again that politics and power rules the day not bread and butter and families and jobs. The behavior of Germany is actually frightening in light of the fact that it is the major beneficiary of this artificial exchange mechanism. The Euro is allowing cheap German goods flood Europe and explains why it has 200-300 billion Euros of trade surpluses with its economic partners.

In a survey last week over 80% of Greeks said they wanted to exit the Euro but this voice is not being reported in much the same fashion that Connolly’s concerns were silenced by elite bankers and politicos. However, in 1995 when the Euro mechanism was being set up the world was less connected. Today we have international hedge funds connected through Cray computers ready to “play” the markets. As soon as traders realize the Euro is a one way bet they will opt to profitably destroy the exchange mechanism because of its exposed failings. The Emperor has been seen to have no cloths. As sure as night follows day they are going to reap their reward. They will seek to emulate George Soros when he reaped his one billion sterling paycheck on the 16th. September 1992 (“Black Friday”). It was that day the bank of England lost 3.4 billion sterling in one single 24 hour period, defending a flawed exchange link to Euroland. It is my suspicion that Germany sees this as a very real scenario and does not desire to waste its hard won foreign reserves on a “Norman Lamont” (The “Black Friday” chancellor of the British exchequer) type endgame.

All of this would be fascinating if it were purely an academic issue, unfortunately it is not. In Ireland, for example, the country is going through a horrendous economic downturn, one which is being exacerbated by this “currency” crisis. The problem is the perception is out that the Euro is not a real currency and confidence is vanishing. The end result is lost jobs, non-existent credit, frozen business cash flows, unemployment and emigration. In other words the issues are very, very real. And I am sure it is the same in Greece, Portugal, Spain and Italy.

I do hope that the powers that be put their heads together to solve this developing disaster. Bernard Connolly wrote about it 35 years ago so they have had a lot of time to prepare. Let’s hope wisdom prevails and that the lessons Argentina learnt nearly a decade ago can be used. In that crisis, when she had to break the link to the Dollar (a la our Euro), she allowed devaluation. Inspiringly its leaders also insisted on the recalibration of all Dollar denominated loans. In evaluating their response to the currency crisis elite realized that they had only two options. Social catastrophe or neutered bankers. They took on the bankers and substantially diminished their debt. Thus they saved their nation.

 Accordingly, the so called “PIIGS” countries; Portugal, Italy, Ireland, Greece and Spain, should form a league for the purpose of national economic restructure. This league should form a common secretariat with the purpose of negotiating an exit from the Euro and allowing their currencies to “float” once more. This will immediately allow their economies to become competitive again without widespread deflation. Most importantly all Euro loans must be devalued based on a new negotiated exchange conversion, as per the Argentinean model. This action will be greatly resisted by Euro bankers. This is why no one European nation could go this route alone. But together, in league, they have a chance.

 I hope Irish leaders realize the difficulty we are in and have the intelligence, resolve and wisdom to formulate the type of solution mentioned. If such leadership was shown by Ireland perhaps the other heads in Portugal, Italy, Greece and Spain would have the courage to join with their fellow European brothers and sisters and save their nations from certain financial regression. Yes we truly are living in interesting times.

Reference:        “The Rotten Heart of Europe”
                            Bernard Connolly
Faber & Faber, London, 1995.

By Christopher M. Quigley
B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie

Mr. Quigley is 46 years of age and holds a Batchelor Degree in Management from Trinity College/College of Commerce, Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the Stock Market in San Francisco, California where he lived for 6 years. Now based in Dublin, Mr. Quigley actively trades utilising the principles set out in the modules above. This Wealthbuilder course has been developed over the last 9 years as a result of research, study, experience and successful application.

© 2010 Copyright Christopher M. Quigley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Christopher M. Quigley Archive

© 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