Saturday, January 31, 2009

The fate of the euro is decided in Washington

Americans are able to trigger off a new single European currency

At the end of the week's finance ministers and central bank heads of the Group of Seven meeting began in the city of Boca Reyton (Florida, USA). It has long been this kind of activities did not cause so much interest throughout the world. In mid-January rate of the single European currency reached a record level: the price of 1 euro reached U.S. $ 1.29 since the beginning of the year is not a day passes without a statement of the United States or European countries, which raises the question of the exchange rate of the euro.

European countries are seeking to halt the prolonged rise of their currencies, which threatens the fragile economic recovery. But no one can delete the unsuccessful outcome of meetings of the Group of Seven in Florida, where between Americans, Europeans, Japanese and spread this battle on the issue of exchange controls. The failure of the meeting could lead to a new upsurge of the European currency.

The most clear policy on exchange controls until Japan. The Government does not wish to increase yen rate, and therefore, in January, the Bank of Japan currency intervention has spent more than $ 60 billion That strategy led to a massive attack of relative stability.

Meanwhile, the U.S. position is hypocritical. Officials in Washington say that the "strong dollar is in the interest of the American economy." President George W. Bush and Treasury Secretary John Snow rub on it when they ask questions about the dollar. However, no one drew attention to the wording of a ritual devoid of meaning.

Over the past few months, Washington has never expressed regret over the falling dollar. Instead, the U.S. Treasury has repeatedly stressed the advantages of a weak dollar for the export performance and economic growth. And, more importantly, urged not to interfere in the situation on the currency market, which according to him, he should govern the dollar.

Observing that the position of the U.S. administration, the operators of the financial markets before the end of January were convinced that the decline in the value of the dollar is in the interest of the White House, which promotes even fall in its currency. However, that confidence has been seriously rasshatana the head of the U.S. Federal Reserve Alan Grinsptnom, which is January 28, announced his intention to raise interest rates. Back in August last year, FHC has promised to maintain interest rates at the same level over a long period. " Now, apparently, the attitude of this institution has changed.

At the height of the campaign the U.S. administration must choose between another decline in the dollar and an attempt to stabilize, which would postpone raising interest rates for the period, which comes after the presidential election. This uncertainty in the position of Washington can ease the task of the Europeans who want to speak with one voice in the matter of the ratio of the euro and the dollar.

January 19 in Brussels, eurozone finance ministers, consolidated the position of President of the European Central Bank (ECB) Jean-Claude Trichet, and expressing concern about the "disproportionate fluctuations in the exchange rate", expressed the need to "stabilize". They also stressed that "the long-term strategy remains unchanged: the euro must keep its value over the medium to long term, according to its economic foundation." This statement is totally eurozone finance ministers reiterated the view of Jean-Claude Trichet announced a few days earlier, in Frank-furte at Main).

Nevertheless, among European governments, there is no unified position on the sharp rise of the euro. Some emphasize the negative side, the other, by contrast, insists on the advantages of increasing the value of European currencies. On the one hand, the rise of the euro is helping the ECB to limit inflation. On the other hand, the euro appreciation would adversely affect the performance of economic growth and ranking of European governments.

It seems paradoxical that the European countries has been able to speak with one voice on the euro. Indeed, just two months ago, EU countries have experienced deep divisions caused by disagreement over the Stability Pact in the euro zone and in fiscal policy. Yet, outwardly apparent firm position of European countries on the euro is actually unsustainable.

At the outset, leading bankers very skeptical about the ability of governments to influence the situation on the currency market. In their view, only Jean-Claude Trichet could maintain stability in international financial markets. Speeches same politicians in Europe only negate the positive effect of the statement by the head of the European Central Bank. Another problem is that the governments of the eurozone and the Central Bank could not agree on how to be the euro. According to the majority of European Finance Ministers, the European currency entered a "danger zone". However, the ECB did not think so: his head said that in the course of the ratio of 1 euro = 1.25 U.S. is not unusual and even more alarming.

In short, the ECB's fear of a rapid fall of the euro, while European governments just do everything possible to ensure the devaluation of the currency. In this situation, when each side is trying to prevent the infringement of their prerogatives, even the slightest rise of the euro could "blow up" demonstration consensus.

Recall that immediately after the statement by the Minister of Finance of France Francis measure that on 19 January at a meeting in Brussels, "the question was raised about lowering interest rates in Europe, followed by the immediate reaction of Jean-Claude Trichet. In his statement of 26 January the head of the ECB said that at that meeting "on interest rates was not discussed."

Against this background, the failure of the upcoming meeting of Group of Seven in Florida, no doubt, will lead to greater differences between the ECB and European governments. Even if the governments of the euro would increase the pressure on the ECB, the latter will be a long fight before intervened in the currency market to hinder the appreciation of the euro.

In Europe, in fact there is no clear policy on the currency market. The only chance for the euro zone is to Americans - the Bush administration and the Fed - came to the conclusion that the dollar has declined too. Thus, the fate of European unity was in the hands of Washington.

By Le Monde (translation Inopressa.Ru)

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