EU-DIGEST

Barroso says crisis has brought Britain closer to euro

The international financial crisis has set off a radical change in thinking in Britain about the euro, EU commission chief Jose Manuel Barroso said Sunday. While acknowledging the majority opposition in Britain to embracing the euro, Barroso told French radio: "We are now closer than ever before." He added: "I'm not going to break the confidentiality of certain conversations, but some British politicians have already told me: 'If we had the euro, we would have been better off'."Barroso pointed to the case of Denmark, another EU state which has so far refused to accept the euro but is considering holding a new referendum on the single currency. The Danish voted against joining in 2000.

Labels: Britain, EU, euro

Euro Trades Near Three-Week High Against Dollar as Stocks Rise and unemployment drops in Germany - Andrew MacAskill

The euro traded near a three-week high against the dollar as European stocks advanced for a fourth day and a report showed unemployment declined in Germany, the region’s largest economy. The currency shared by 15 European nations gained versus the Brazilian real and Canadian dollar as every major stock market in the region rose. German unemployment dropped in November, withstanding the worst recession in 12 years. Indian rupee forwards fell on speculation overseas investors will shun the nation’s assets after terrorist attacks in Mumbai prompted regulators to shut markets.

Labels: employment, EU, euro, Germany

Britain - At this rate, it won't be long before we're joining the euro - by Steve Richards

The calls for a significant cut in interest rates get louder. In the US there is speculation that before very long rates will be close to zero. The long list of those keeping their fingers crossed here that the Bank of England will deliver a headline-grabbing reduction next week includes home-owners with big mortgages, small businesses, big businesses, the Chancellor of the Exchequer and the Prime Minister.

One wonders how long it will be before a traumatised senior minister thinks the following: "This wretched independence for the Bank is the worst of all worlds, yet it would make matters even worse to revert to the old arrangements. Therefore the least risky course is to join the euro". If the arrangements aimed at stabilising the currency are now a source of turbulence, and a return to the old system would cause even more storms, there is no obvious alternative option. That great sleeping issue, Britain's membership of the euro, will be waking soon.

Labels: Britain, EU, euro

Financial crisis builds Polish euro-entry momentum - by Philippa Runner

The financial crisis is building momentum for Poland to swiftly join the EU's single currency on 1 January 2012, with a positive political climate for the euro also developing in the Nordic states. "The world crisis has shown that it's safer to be with the strong, among the strong and to have influence on the decisions of the strong," Polish Prime Minister Donald Tusk said on Monday (27 October), adding that his pro-euro policy is "not based on any orthodoxy, any ideology" of deepening EU integration.

Note EU-Digest: "being a part of the European Union also means carrying some of the burdens and not just profiting from its benefits. A stronger, integrated and unified Europe is an important part of keeping the euro strong. You can't have your cake and eat it too Mr. Tusk".

Labels: EU, euro, European Integration, Poland

Solbes Says Oil, Euro May Help Spain Avoid Recession - by Maria Leaniz and Emma Ross-Thomas

Spanish Finance Minister Pedro Solbes said lower oil prices and a weaker euro may help the country avoid a recession. ``We're very close to zero,'' growth, he said in an interview in Madrid yesterday. Still, cheaper crude and the euro's decline may ``allow that if there is negative growth in the Spanish economy that it would be limited, if possible, to one quarter.'' The euro's 20 percent decline since a July peak will help sustain exports, while the drop in oil prices is trimming production costs and leaving consumers with more to spend even as growth slows.

Labels: EU, euro, Spain

Where would we be now without the euro? - by Hans Martens and Fabian Zuleeg

As John Thornhill noted in the Financial Times earlier this month: "The creation of the 15-country euro zone has introduced greater stability into the heart of the European economy, ending the frenzy of competitive devaluations that marked previous financial panics." It is easy to forget that not very long ago, a financial crisis in Europe went hand-in-hand with currency turmoil. In volatile financial markets, speculation often focuses on exchange rates, especially in cases where countries aim to maintain a level of parity with other currencies.

As former European Central Bank Executive Board member Otmar Issing recently put it in The Japan Times: "It is not difficult to imagine what would have happened during the recent financial-market crisis if the euro-area countries still had all their national currencies: immense speculation against some currencies, heavy interventions by central banks and finally a collapse of the parity system."

In times of rising scepticism towards the EU, highlighting the benefits of established 'core' common policies is all the more necessary. More needs to be done to improve Europe-wide supervision and coordination. But maybe the time has come for countries that are not in the euro zone (or indeed those which have not yet joined the EU), to reconsider whether it is better to be outside when coordination and integration inside can offer a degree of additional stability in an uncertain and volatile world.

Labels: EU, euro, European Unity, monetary stability

Europe’s anchor of stability - by Otmar Issing

At less than ten years old, the euro is by all measures a young currency. Yet it has become a reality of daily life for almost 320 million people in 15 European countries. In the wake of the euro’s performance during this year’s global financial crisis, even its strongest critics cannot deny that the euro is an astounding success.

But this success is no reason for complacency. Major challenges lie ahead. In the context of weakening growth, the Stability and Growth Pact will face a severe new test. And, just as important, reforms aimed at ensuring greater flexibility of markets still lag behind what is needed to exploit fully the advantages of the single monetary policy.

Labels: EU, euro

EURO: STRONG AT CLOSE

The euro has closed trading strongly up, at over 1.48 dollars. In final trading the euro was fetching 1.4889 dollars, having approached the 1.49 mark. Weighing the greenback down were fears for the stability of the US financial system, linked above all to the fates of mortgage giants Fannie Mae and Freddie Mac. The euro closed on 161.13 yen while the dollar was fetching 108,26 yen.

Labels: Economy, EU, euro

Five Forces Driving the Euro Down - by Kathy Lien

Five forces are driving the EUR/USD lower, and with no respite in sight for any of these trends, the currency pair should be headed for 1.45. These 5 factors are oil prices, eurozone and US economic data, market sentiment and the chances of a rate hike by the Federal Reserve before the end of the year.

Note EU-Digest Basically all bets are off given the volatility of present market forces and the financial stability in the banking sector.

Labels: Economy, EU, euro

EU-Economy: Lower Euro improves foreign exports for Europe as Consumer goods firms and exporters lead rally in European stocks

European stocks rose Friday, led by consumer-goods companies, as falling commodity prices eased concern that inflation would force central banks to lift interest rates. Carrefour, Ryanair Holdings and Royal Bank of Scotland climbed after prices for oil, gold, copper and corn declined. European Aeronautic Defense & Space Company rallied 5.3 percent as the euro slipped to the lowest since February against the dollar, boosting the value of its overseas sales.

Labels: EU, EU Economy, euro, Export

EU's Almunia says euro overvalued against Chinese yuan

EU economic and financial affairs commissioner Joaquin Almunia said the euro is overvalued, while some currencies with an official exchange rate, such as the Chinese yuan, are undervalued. In an interview with the daily La Republica, Almunia said that there is also the risk that the dollar could further decline against the euro and called on the governments of the euro-zone to coordinate their stances.

"It is necessary that the euro zone finds a clear consensus and speaks with one voice at the next international meetings," with the G8 and IMF, he said.

Labels: China, euro, yuan

Euro hits record high 1.6038 dollars

The European single currency leapt to a record high above 1.60 dollars here on Tuesday as investor fears grew over the state of the US economy and its financial services sector, dealers said. In late morning London deals, the euro jumped to 1.6038 dollars, which beat the previous all-time peak of 1.6019 that was set on April 22.

Labels: EU, euro

Ten years later, the euro stands strong - by Carter Dougherty and Mark Landler

Paris, Lisbon, Madrid, Rome and Berlin - each, at some point, the political and economic capital of an empire, containing the power of New York and Washington combined - each surrendered a piece of sovereignty to a common currency, a foreign coin of the realm. "When you have to cope with the history enshrined in those capitals," Trichet said in an interview in the Eurotower, the European Central Bank's headquarters, in Frankfurt, "you are necessarily working on an original." That original, the euro, is the currency of 15 countries and 320 million people today. Trichet and top European leaders, including Chancellor Angela Merkel of Germany, will gather today in Frankfurt's elegant Old Opera to celebrate the accomplishment.

Labels: Economy, EU, EU Economy, euro

Euro Matters - by Arielle Fridson

Several factors underlie the current strength of the euro. One basis for the euro’s appreciation against the dollar is the contrast between Europe’s economic expansion and America’s stagnant growth, persistent budget deficits, and decline in the housing market. The Federal Reserve’s repeated interest rate cuts have also reduced the relative attractiveness of dollar-denominated fixed-income investments. But the euro’s continued strength faces obstacles as well, not least because the euro is freely traded while the exchange rates of several other major currencies are tightly controlled. China prevents the yuan from appreciating by buying tens of billions of dollars. The resulting pressure on the U.S. currency causes Europe to lose competitiveness against America as well as Asia. “The Europeans are fully justified in complaining that this isn’t a fair way of running an international financial system,” said Desmond Lachman of the American Policy Institute in an interview with the HPR. Robert Scott of the Economic Policy Institute also elaborated in an interview with the HPR that the “euro has probably overshot the equilibrium levels.”

Spain and Italy, whose economies have suffered from a housing bust and other domestic issues, will want higher interest rates and a weaker euro, but the European Central Bank is unlikely to respond to such demands. Instead, the ECB remains far more influenced by conditions in larger countries, such as France and Germany, creating tensions among countries in the euro zone. “It’s one of the very big political costs of having a central currency,” Lachman noted. “In the next year we are going to really be seeing [the viability of the euro] tested.”

Labels: China, EU, EU Economy, euro, US Economy

As Euro Nears 10, Cracks Emerge in Fiscal Union - by Mark Landler

The euro turns 10 next January, a milestone that will be marked with celebratory speeches, inch-thick scholarly papers and a commemorative 2-euro coin, designed by a Greek sculptor. It was chosen from five candidates in an online poll of European residents.Today, though, “the old temptation of the governments to find a culprit for their problems has returned,” he said. “It is a wider problem than one or two political leaders.” In some sense, the political honeymoon for the euro ended in May 2005, when voters in France and the Netherlands rejected the proposed constitution for the European Union. While that document had little direct bearing on the currency, it symbolized Europe’s steady march from economic to political integration, a process that, for now at least, has stalled.

Labels: EU, euro

Iran No Longer Accepts U.S. Dollar In Oil Trade

Iran is no longer accepting U.S. dollars for purchases of its oil and is selling the commodity in the world market only in euro and yen. Cbsnews.com quoted Iranian Oil Ministry official Hojjatollah Ghanimifard as saying on Wednesday, "The dollar has totally been removed from Iran's oil transactions. We have agreed with all of our crude oil customers to do our transactions in non-dollar currencies." The official said that Iran is selling oil to Europe in euro and to Asia in yen. Iran decided to abandon using the dollar because the depreciation of the U.S. currency is eating away the country's foreign currency reserves.

Labels: Dollar, euro, US Economy

The Netherlands: Consumer rip-off at gas stations in the EU - by Rick Morren

Its amazing what is happening at gas stations all over the EU. The consumer is either being ripped-off or someone is not able to calculate.

Eight years ago in 2000, Europeans paid euro 1.20 to purchase US $ 1.00. At that time one barrel of oil on the world market cost US $ 60.00. Based on the exchange rate then, it meant that Europeans were paying euro 72.00 for one barrel of oil, and Diesel oil at the pump was being sold at .82 cents per liter.

Today, April 2008, Europeans buying a US dollar pay only euro 0.65 for that dollar and a barrel of oil costs $ 110.00. In today's euro's this equates to euro 70.10 per barrel of oil. Putting these figures together we see that a barrel of oil based on today's dollar exchange rate actually costs euro 1.90 euro less than what the EU had to pay for that same barrel of oil back in the year 2000. Unfortunately at local gas stations EU citizens are not seeing any reflection of the lower oil price as a direct benefit from their strong euro. While the purchase price of a barrel of oil has actually gone down over the past 8 years, when purchased in euro's, consumers are now paying euro 1.25 for that same liter of diesel fuel for which they used to pay euro 0.65 in 2000. A nearly 100% increase.

It is pretty clear someone needs to brush-up on their mathematical skills. Either the oil company executives and government officials are having badly functioning calculators, or someone is ripping off the consumers. The latter probably being the case. It is high time for Mrs. Neelie Kroes, European Commissioner for Competition to take a look into this.

Labels: EU, euro, Gas Prices, The Netherlands

Europe is learning to live with the mighty euro - by Mark Lander

When the euro tiptoed above US$1.30 four years ago, finance ministers from Germany, France and Austria wrung their hands about how it would hurt Europe's exporters, some muttering that the US should put its economic house in order.European firms are no longer so reliant upon the US market, their raw materials are cheaper and the falling dollar has cushioned them from oil price hikes

Labels: EU, EU Economy, euro

Europe idle as US battles meltdown - by Ambrose Evans - Pritchard

It is the first time since the Great Depression that the US Fed has stepped in directly to absorb credit losses, crossing a line deemed unthinkable just months ago. The dramatic late-night move on Sunday required dredging up Article 13 (3) of the Federal Reserve Act, which allows the Fed to shower money on almost anybody it wishes by a vote of five governors in "unusual and exigent circumstances".Jean-Michel Six, chief Europe economist at Standard & Poor's, said the Europeans were in no mood to rescue America. "There is monetary war going on. The ECB view is that Fed is a victim of its own mistakes and should pay for its past crimes. Frankly, they don't see why they should be cutting rates when inflation (3.3pc) is accelerating," he said.

There are now echoes of October 1987 when the German Bundesbank (and therefore Europe) refused to ease monetary policy, even though the dollar was in freefall and Wall Street was fragile. The spat was the backdrop to the Black Monday crash.

Note EU-Digest: The ECB is on the right track, the problems of the US economy are of the US her own making. If the ECB cuts the interest rates in Europe, inflation would rise and Europe's economy would also spiral into disaster.

Labels: Britain, Christianity, Energy, EU, EU Economy, euro, France, Gas Supplies, Healthcare, Iraq war, Islam, Italy, Romance, Russia, Sarkozy, Sex Appeal, Turkey, US, US Economy

Dollar's plunge pushes eurozone past US, Goldman Sachs says

The dollar's plunge has made the eurozone the world's biggest economy by one measure and has underscored shifts that are reorienting the 15-nation bloc towards Asia, Russia and oil-rich Gulf states, analysts say. "With the euro now trading around 1.56 against the dollar, the size of its annual output (at market value) has exceeded that of the United States," US investment bank Goldman Sachs estimated last week. "Brief as the development may prove to be, European policy makers will no doubt derive some pride" from the event, it said. The single European currency has skipped from record to record amid fears the US economy is heading into recession at a time of national housing and financial crises.

Interest rates have been cut in the United States to spur business activity, while the European Central Bank (ECB) has kept lending rates steady owing to concern over eurozone inflation that hit a record of 3.3 percent last month. Meanwhile, the economy of 320 million people -- which churns out 15 percent of global gross domestic product -- has slowed but shown a degree of resiliency to the US slump that few would have counted on just a few years ago. Historically thrifty German consumers helped the national retail sector gain 2.7 percent in January, with the trend continuing in February according to the HDE sector association.

Labels: Dollar, EU, euro

Who's Afraid of Super Euro? - by Holger Schmieding

Despite the relentless rise in the external value of their currency, euro-zone businesses are still braving the storm.

In late 2007, net exports accounted for the entire 0.4% expansion of the euro zone's gross domestic product. And just before the common currency broke the $1.50 barrier, a major euro-zone company (EADS) secured a $35 billion U.S. defense contract against fierce competition from its American rival (Boeing). So before European politicians moan further about the exchange rate and scold the European Central Bank for saying so little about it at last Thursday's meeting, let's take a closer look at the issue. What can explain this resilience of the euro-zone's external economy? Most importantly, few regions have gained more from globalization than the euro zone.

With their focus on quality machinery, infrastructure equipment, cars and airplanes, West European companies offer a product mix well-suited to the investment boom in East Asia, the oil-exporting countries and parts of East-Central Europe. And as consumers in those countries are getting richer, the European purveyors of top-branded luxury consumer wares can also look forward to rising sales for years to come. In addition, many euro zone companies have aggressively globalized their production. This makes them less vulnerable to exchange rate shifts. Many West European countries have also turned themselves into less hostile regions for investors -- cutting taxes and loosening some of the worst labor market rigidities. Germany, for instance, is now a better place to invest and create jobs than five years ago when the euro was much weaker.

Labels: EU, euro

EURO versus DOLLAR: Iraq, the US trump to avoid a dollar collapse - by Alberto Cruz

With an exchange rate over US$1.51 against the Euro and a continuing depreciation against the Yen, the dollar is close to collapse. This is a theory that has been repeated for some time now (1) although it doesn't mean we are in the twilight of the current economic system nor in the antechamber of a crisis in capitalism's nerve centre. But we are witnessing a progressive weakening of the United States and this provokes movement, sometimes small but still significant, in what is really important : the progressive reduction of various countries' dollar reserves (right now 64.8% of the world's monetary reserves are held in dollars) and their transfer into other stronger currencies like Euros or Yen. That means fewer dollars in circulation and less financing for the US external debt of about 9 trillion dollars. In fact the dollar as the main currency for international trade and as the main reserve currency for different countries' Central Banks has lost almost 7 percentage points since 1999, dropping from 71% of all reserves that year to the current 64.8% now, which indicates that more and more countries are reducing their dependency on the US currency.

For the US to staunch this constant financial bleeding only one life raft remains : Iraq. That means increasing oil production in that country at all costs, ensuring its definitive return to OPEC on the same terms as OPEC's other members - since Iraq was paralyzed by the UN during the government of Saddam Hussein following the sanctions the country was subjected to - and above all, with Iraq's presence, reinforcing Saudi Arabia, which is under more and more pressure from the oil cartel's other member countries to stop using dollars as the only currency for oil transactions. When Ahmadinejad and Chavez made their proposal, the Saudis were the most reluctant to accept it or even to discuss it and managed to avoid even a tangential reference to the issue in the final declaration of that OPEC summit. But the reality is much more obstinate. Maintaining the alliance with the US is ever more costly in political and economic terms. In Saudi Arabia current inflation rates are the highest since 1980, running currently at 7%. In the United Arab Emirates, inflation is even higher at 9.3%. (3) The reason is none other than the weakness of the dollar in economies completely dollarized as those countries' are. That is what has led the Saudis finally to let their arm get twisted and to accept now a discussion about the dollar in the terms proposed by Venezuela and Iran.

Labels: Dollar, EU, euro, Iraq, Oil, Opec

German Investors Confident Despite Soaring Euro

Surprise results from a key investor confidence survey have helped the euro to another all-time high against the dollar. Though the imbalance could hurt the economy, some investors apparently see blue skies ahead.

The euro's rise on foreign exchange markets could endanger economic growth in the euro zone, the European Union's Slovenian presidency said on Tuesday, March 11, as the euro hit a record high just shy of $1.55. "Of course this is a problem that we are witnessing on a daily basis," Slovenia's Finance Minister Andrej Bajuk said in an Internet broadcast. "We have come to the conclusion that these movements may not have a positive effect when it comes to economic growth and development."

Labels: EU, euro, Germany

EU's President Barroso says euro cushioning oil price impact

Europe has been shielded from the effects of rising oil prices to some extent by the strength of the euro, European Commission President Jose Manuel Barroso told a French newspaper in an interview released on Saturday. "Today we buy a barrel of oil at 66 euros, whereas if there were perfect parity, we would be paying more than 100 euros," Barroso told the weekly Journal du Dimanche. "Of course we're concerned about this wide divergence in exchange rates, but at the same time we have to see that the so-called "strong" euro -- or rather the weak dollar -- has allowed us to cushion the impact of the rise in commodity.

Note EU-Digest: "Mr. Barosso might be right when it comes to the purchasing power of the euro, but the oil companies are still increasing the price on the oil products they sell in Europe disproportionately, regardless of the strong euro. Mrs. Neelie Kroes European Commissioner for Competition who has been doing a great job in watching out for the interest of the EU consumer should also start to focus her attention on the "price gouching" oil companies operating on the territory of the EU".

Labels: EU, euro, Neelie Kroes, oil companies

Don't play politics with the euro - and don't follow US example of reducing interest rates or listen to France

For anyone seduced by French complaints over an overvalued euro, and the need for the European Central Bank (ECB) to concentrate more on pursuing growth, the lesson is plain.

If you ignore the post-1945 German focus on fighting inflation and pour in easy money, then disaster follows. Note EU-Digest: All you have to do is look at the US economic policies so greatly admired by Mr. Sarkozy. Without tight monetary controls and economic discipline the greed of the corporations takes full control and the stock-market becomes a casino.

Labels: EU, euro, Sarkozy

Oil prices near $104 a barrel as dollar falls to historic low against euro - Jad Mouawad

The price of oil rose Monday to nearly $104 a barrel after the dollar fell to a historic low against the euro, setting a record and exceeding the inflation-adjusted high reached in the early 1980s during the second oil shock.The immediate catalyst for the spike in energy prices is the drop in the value of the dollar. Currency traders are selling dollars and buying euros to take advantage of the difference in interest rates between the United States and Europe. The dollar weakened, continuing its steep decline of last week, and the euro rose to a record $1.5274 in early New York trading. The dollar also fell to its lowest level in three years versus the yen."The question for oil is where is the dollar going," said Roger Diwan, a managing director at PFC Energy, a consulting firm in Washington. "That's going to be the main market mover in the short term." Since 2000, oil prices have more than quadrupled as strong growth in demand from the United States and Asia outstripped the ability of oil producers to increase their output.

The Saudi Arabian oil minister, Ali Al-Naimi, said crude prices were unlikely to fall below $60 a barrel because the cost of developing alternative fuels, like tar sands, is rising. "Therefore, a line has been drawn below which the price cannot fall," Naimi said during an interview which was published over the weekend by Petrostrategies, a Paris-based industry newsletter.

Labels: euro, Oil, World Economy

Dollar pressure resumes; euro, Swiss franc hit fresh record highs - by William L. Watts & Lisa Twaronite

The dollar fell to a lifetime low of 1.0482 Swiss francs. The 15-nation European currency rose as high as $1.5228, its loftiest level since it began trading in January 1999, as Bernanke spoke on Capitol Hill for the second day of his report on monetary policy. While Bernanke downplayed concerns that the U.S. economy might be in the grip of stagflation -- a combination of low growth and inflation -- the Fed chief said there would likely be some bank failures, though not large firms. "We are facing a situation where we have simultaneously a slowdown in the economy, stress in financial markets, and inflation pressures coming from these commodity prices abroad," Bernanke said.

Labels: EU, euro

Euro up. Dollar down. U.S. debt through the [over-mortgaged] roof

"Hail the conquering euro! Yes, we know - we've used that catch phrase here before and we'll probably have opportunities to revisit it in the future, too. For now, though, it couldn't be more apt. That's because, yesterday, the euro, which is now the national coin of 15 European countries, reached an all-time high in its value against the American dollar. In international trading, one euro reached a value of nearly $1.51 before settling down a fraction of a percentage point lower.

Then there's that pesky fact out there in what a Bush administration minion once famously referred to as the "reality-based community," namely the real world. That fact states rather irrefutably that Bush's war in Iraq has cost the U.S. government 50 to 60 times "more than the Bush administration predicted" it would. On Tuesday, the Nobel Prize-winning economist Joseph E. Stiglitz took part in a panel discussion at Chatham House, the London-based think tank. He pointed out that Washington's limitless Iraq-war spending "was a central cause of the sub-prime banking crisis threatening the world economy."

Labels: Economy, EU, euro, US Economy

Euros Accepted signs pop up in New York City

In the latest example that the U.S. dollar just ain't what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise. "We had decided that money is money and we'll take it and just do the exchange whenever we can with our bank," Robert Chu, owner of East Village Wines, told Reuters television.

While shops in many U.S. towns on the Canadian border have long accepted Canadian currency and some stores on the Texas-Mexico border take pesos, the acceptance of foreign money in Manhattan was unheard of until recently.

Labels: EU Economy, euro, Trade

Germany's Merkel says strong euro has advantages

German Chancellor Angela Merkel said on Tuesday that the high level of the euro reflected the strength of the European economy and has advantages as well as disadvantages. "The strong euro is a sign of the strength of Europe. It has advantages and disadvantages. The disadvantages are talked about all the time," Merkel told reporters at a news conference. "The question is whether we should try to change the euro rate without regard to price stability. The answer to that is a clear no."

Said Merkel: "The ECB, whose main priority is fighting inflation,is the only major bank in major industrialized countries currently contemplating the possibility of increasing interest rates, even as worries persist about the fallout from the U.S. subprime lending crisis. The ECB's price stability policy is supported by us," Merkel stressed. She pointed to Germany's "firm rule that the European Central Bank's independence should not be called into question by any political pressure."

EU-Digest comment: Mrs. Merkel is right on target. The ECB is doing a great job and the way to fight inflation is not to reduce interest rates. Europe does not need the economic disaster the US is experiencing.

Labels: ECB, euro, Germany, Inflation

Lining up for euros in Cyprus and Malta - by Nelaos Hadjicostis

The adoption of the euro Tuesday by Cyprus and Malta went smoothly, as citizens lined up at banks to exchange pounds and lira for the new currency without many problems. The small Mediterranean islands, both former British colonies, scrapped the Cyprus pound and Maltese lira at midnight, bringing to 15 the number of countries using the currency that has increasing clout over the slumping U.S. dollar. Cypriot banks opened central branches in Nicosia and other major cities for a few hours Tuesday to exchange the old currency for euros.

Labels: Cyprus, euro, Malta

Cyprus on final countdown to euro zone

With just hours to go before the legal tender changeover from Cyprus pound to the euro on Jan. 1, authorities and citizens on the eastern Mediterranean island seem well prepared to embrace the single currency. In the past weeks, security vans escorted by police have traveled frequently between the Central Bank of Cyprus in the capital Nicosia to local commercial banks, delivering brand new euro bank notes and coins. Cypriots, especially shop owners have obtained euro coin starter kits from bank branches, since all changes should be made in euro instead of Cyprus pound since the New Year's day, though the latter can be circulated along with the euro till the end of January.

Labels: Cyprus, EU, euro

The Epic Battle over Crude Oil and the US$ - by Gary Dorsch

Why are Ahmadinejad and Chavez laughing? Oil prices are up 56% this year, after nearly reaching $100 per barrel. At the same time, the US Dollar is mired at a 20-year low, with the US economy teetering on the verge of a recession. The US dollar has fallen over 50% versus the Euro since 2002, and oil prices are nearly five times higher over the same time period. Increasingly, the US dollar’s reserve currency status is looking very fragile. Perhaps, all that’s left supporting the greenback is America’s military might. “They get our oil and give us a worthless piece of paper,” Ahmadinejad told OPEC ministers in the Saudi capital of Riyadh, insulting the US dollar.The Federal Reserve has allowed the MZM money supply to expand by $850 billion this year, up 13% from a year ago. The broader US M3 money supply is 15.8% higher, it’s fastest in history, monetizing the prices of crude oil and gold, key hedges against inflation, to all-time highs.

Explaining the Fed’s reason for ignoring sharply higher food and energy prices, on October 20th, Federal Reserve governor Frederic Mishkin said, “Changes in price indexes without food and energy provide a clearer picture of underlying inflation pressures. If the monetary authorities react to headline inflation numbers, they run the risk of responding to merely temporary fluctuations,” he said. At the same time, Mishkin said it was the Fed’s job to “counteract negative shocks to the economy,” from high oil prices, suggesting a further expansion of the money supply.

Clearly, the US Treasury expects a quick fix to the Global “Oil Shock” from King Abdullah to cap global oil prices, by boosting Saudi oil output next month. That would permit the Fed to lowers its lending rates and inject more dollars into the hands of Wall Street dealers, while keeping the “crude oil vigilantes” at bay. But a move by the Saudis to knock oil prices lower could also inflict damage on its own stock market, which is just starting to shake off a nasty two year hangover.

Labels: Dollar, EU, euro, Oil

The Dollar-Fifty-Six Euro

"When some Americans travel to Europe these days, they are shocked at the anti-American (or more precisely, anti-Bush) attitudes expressed by the Europeans. Me, I'm used to that sort of thing, so when I heard such sentiments on my recent vacation, they didn't surprise me much. But what did shock me was the airport currency exchange counter. To buy one Euro on the day I arrived, it cost me $1.56. This hasn't happened yet, but signs are pointing to other countries at least considering this sea change. In 2007 the Euro has hit a new high as a percentage of the world's reserve currency (25.6%), but although the dollar has dropped a bit from its high of around 71%, it's still a comfortable 64.8% which is not even at the low of 59% reached in 1995. The Euro, in other words, still has a long way to go before it replaces the dollar in the world's bank vaults."

The strangest manifestation of the weak dollar in Europe right now is the hordes of European shoppers coming to America (New York City, mostly) to do their Christmas shopping. While some are Euro-yuppies who are buying foreign goods for their chic value (the same way we buy European products because they're "cooler" than American products), many are simply looking for a bargain.Is this to be America's future? Bargain basement to the world?"

Labels: Dollar, EU, euro

The Euro vs. Dollar double gambetto for high tech corporations - "STRONG EURO IS GOOD FOR EUROPE"

"In chess, a gambetto - say it with an Italian accent, consists in sacrificing a piece at the beginning of a game to gain a competitive position on the exchequer - for example through the control of the center of the chessboard or one of the long diagonals. Getting back to business (we’ll get back to the gambetto later), it is very common to say that the state of an economy is reflected by the strength of its currency when the Euro currency is weak - and hence that the economy of the EU are in poor shape. However, when the Euro gets stronger, companies and officials claim that corporations are constrained in their efforts to export goods and services and that the situation should be reversed or the EU will soon enter an economic turmoil. I think this is all too easy and bullshit."

"God Dollar used to be the only viable currency in international trade, until the Euro came out of nowhere in January 2000 (2001 for actual pocket coins and bills). The European Union is the world’s largest consumer market, and a gateway to the Middle East and Africa for American companies. Although the Dollar still dominates international transactions of goods (slightly) and financial transactions (easily), the Euro has emerged as a tangible alternative considering the political stability of the region. Consequently, the Euro vs. US Dollar exchange rate has kept growing insanely from 1 EUR = USD 0.85 in mid 2000 (1 EUR = 1.19 USD on January 1st 2000) to 1 EURO = USD 1.47 USD today. Althoug I acknowledge the trickiness of the situation for export businesses, high tech or not, I see very few corporations have implemented hedging strategies or make proper use of forward contracts - which is a shame."

Labels: Dollar, EU, euro

Iran virtually free of U.S. dollar in oil revenues

Iran, at odds with the West over its nuclear programme, has effectively cut all ties with the dollar when it comes to oil revenues, a top Iranian oil official said on Monday. For nearly two years, OPEC's second biggest producer has been reducing its exposure to the dollar, saying the weak U.S. currency is eroding its purchasing power. Tehran is now fetching roughly $87 a barrel on daily crude sales of 2.4 million. Ghanimifard said less than 20 percent of Iran's oil export earnings are in yen and the rest in euros.
He explained that NIOC is receiving more than 80 percent of its payment for crude in currencies other than the dollar.The Islamic Republic and Venezuela made clear before and after the summit they would press for action, which could include pricing oil in a basket of currencies.

Labels: Dollar, euro, Iran

A strong euro is good for Europe - by Peter Gumbel

Ever since the dollar began to fall against the euro in 2002, a chorus of government officials, economists and business executives around Europe - from the CEO of Airbus to the Prime Minister of Luxembourg - has complained publicly and in near-apocalyptic terms about the greenback's decline. Their argument has been that the tumbling dollar makes European goods less competitive on world markets and thus poses a big threat to the European economy overall.In fact, much of the available evidence suggests that a strong euro has done more good than harm for Europe. Far from weakening European competitiveness, it has hastened a major restructuring of industry that has enabled firms from L'Oréal to BMW to compete more effectively in worldwide markets. They and many others have focused on expanding in fast-growing markets at the same time as they have kept an iron grip on internal costs, and have racked up strong profits as a result. Moreover, the existence of the euro itself, which is now used by 13 European Union countries, has sheltered the European economy from much of the foreign-exchange turbulence, since a big majority of E.U. commerce is now with other E.U. countries.

The price of oil, for example, has risen almost five-fold in dollar terms since 2002, but "only" three-fold in euro terms. That's still a huge increase, of course, but less than it could have been.German exporters from car manufacturers to machine tool producers have realized that they cannot compete on price alone. So they have focused on quality, on marketing, on global expansion and on servicing their customers' needs wherever they are, even as they have sought to whack costs out of their system. Olaf Wortmann, an economist at the German Engineering Federation, whose members - largely machine-tool manufacturers - have boosted production by a blistering 39% in the past five years, says the last time business boomed so strongly was back in the late 1950s. The firms' biggest problems these days, he says, aren't caused by exchange rates but by production bottlenecks - currently, the industry is running its plants at 92% capacity.

Labels: EU Economy, euro