Since the introduction of the single European currency has been a year and three months, a history, and now you can make the first analytical conclusions. It is known that at the time of emergence of the euro, many analysts things are the most favorable forecasts for the euro. Some believed that by mid-1999, the euro will reach 1.25, and will be confident in price relative to the U.S. in the future. However, history has shown otherwise. What are the possible causes of failures of the first euro?
There is already mass analysts expressing their own views on this matter. Most of them quite rightly argue that the projected economic growth of European countries is lower than projected, while growth in the U.S. economy above projected, because of this, investor sentiment has changed: the dollar becomes more attractive. There are also views regarding the internal contradictions of participants in the euro zone, vylivshihsya in the scandal with the appointments of key management positions and power. For the stability of the euro, above all, it was necessary to strengthen the credibility of the European Central Bank (ECB). To this end, the ECB in the early years of its operations is particularly important to establish its own distinct identity. Management of the bank was required to act in such a way as to eliminate the suspicion that, in its ranks, there are some kind of national coalition. The battle between the Dutch Wim Duysenbergom and Frenchman Jean-Claude Trichet for the appointment of the first president of the ECB has been counterproductive, switch attention to the professional abilities of candidates to contest states.
France wanted to nominate its own candidate for the post, others resisted. Absurd compromise achieved as a result, allowed France to claim that Duysenberg goes to resign from the post of ECB president in four years (instead of eight years) in favor of Trichet, while Duysenberg himself could deny such an intention. All this is not added to the prestige of his institution. Equally important was to establish proper accountability of the ECB to ensure the long-term political support for a common currency. Weakness explanation from the ECB of its economic policy in the event of any serious economic disruption in the euro area can only strengthen antiintegratsionnye sentiment in public opinion.
Significantly less, yet can not be so obvious to the countries participating in the euro zone, is the fact that the euro is based on a single monetary and currency policy, which is fully transferred to the supranational ECB and the EU, as well as vysokointegrirovannye cash and credit markets, the scope, depth and liquidity that has increased through the creation of the EMU. A single monetary policy could be effective only if the countries belonging to the euro would have the same level of development, but, as we know, this is not the case. Regarding the "strong" euro would not benefit primarily poor countries, as a relatively "soft" euro hurts the interests of most developed countries, notably Germany and the Netherlands, which will be subjected to inflationary pressures.
For the majority of the member countries of EMU (with the exception of Austria, Germany, Belgium, Luxembourg, the Netherlands and with well-known reservations France) until the mid-90's was characterized by considerable asinhronnost the economic cycle. It is therefore possible the emergence of so-called asymmetric shocks, that is, economic shocks that affect only a few euro. The transfer of currency and monetary policy to the Union of national States deprives the principal means of crisis management, while the Union is, by definition, can not adjust their policies to the current needs of individual countries, therefore in the euro zone will occur with greater frequency of crises affecting euro investment climate.
From the viewpoint of economic theory, the 11 Member States of EMU does not constitute "the best currency zone, and their decision to establish a union has been primarily political in nature. Therefore, while the EMU and the euro remained the experiment, the outcome of which has not been clear.
The main weakness of the euro as the currency is that it is not a sovereign state with clearly defined interests and political objectives, a conglomerate of various nations. Created by supranational bodies have a broad but still limited, delegated authority.
In the beginning many were interested in launching the euro this question: how fast (if at all a) other countries are reorienting their reserves to the euro? Stable transfer of reserves of foreign central banks in the euro would seriously support and strengthen the confidence of foreign investors in the new currency. However, povalnogo transfer of reserves in the euro did not take place. This protivodeystvoval a number of factors.
First, do not expect the transfer cost reserves from using a fixed rate, mostly pegged to the dollar or a basket of currencies dominated by the dollar. These states are unlikely to have made a significant change in the near future, after the introduction of the euro. In addition, most countries in Latin America and Asia have a stronger trade ties with the United States than with Europe. They are also not worth it to wait for dumping dollars. Certainly, you can only say that if changes in the structure of reserves in these states from the dollar and the euro will happen, then the process will be gradual and not significant.
Another prerequisite for becoming a reserve currency is the availability of financial markets, where central banks are willing to invest their foreign currency reserves. The global financial centers in Europe can be identified only Frankfurt and London, and the latter focuses more on America and Asia than in Europe. Certainly, U.S. financial markets are most developed in all respects, than Europe, which has added a lot of advantages in the fight for the role of the dominant currency. Moreover, the United States to pay interest on dollar assets of foreign currency authorities, who are placed in bank deposits or securities. Thus, financing the deficit by increasing U.S. commitments in relation to the official holders of dollar reserves virtually no different from the usual borrowing in the form of securities. The main advantage is that the medium-and long-term interest rates slightly lower than they would have been if the dollar does not have a reserve currency.
The advent of the euro has created an invisible competition between the two centers of the USA on the one hand and Europe on the other. And that would not say analysts loser in this competition, the currency will lose support and influence in the financial world, and the country's control. Following this logic, we can assume that the strong euro does not need the U.S., a weak euro does not need members of the eurozone countries, which means that both parties will take all steps within their power (of course within the limits of their knowledge and to the extent necessary) to reasonable strengthening its own currency.
It would probably volnodumstvom suggest that U.S. financial authorities have defined the strategic plan for the dollar to the Euro, but acknowledge that competition in the financial markets of the two currencies is quite reasonable. In turn, such a measure of competition, "spuskaemye above" may contain as improving the investment climate by changing the law, and the artificial equalization rate through currency intervention. It is these factors lihoradyat Market euros.
Primary treatment of 1,18 unlikely, could put on a suspicion, investors in euro-denominated assets, through which a 14 months old on the composition of the 0,94, marking thus fall to 20.5%. Actually, this is catastrophic decline, could only reduce the capital investors in euro-denominated assets, as well as almost non-existent in Europe risk financial instruments, giving 20.5% and more, to compensate for losses from the devaluation.
The consequence of this and has long listed the reasons for the decline rate. So if at the beginning of 1999, its assets transferred to the euro, investors are very cautious, but now seems to have disappointed the Europeans in the euro and the dollar to invest in financial market instruments.
This turn of events is not considered the financiers of Europe, opening the way to the euro, so the step response, a recovery of the euro. However, because of a fundamental nature, the basic trend of the ECB was unable to break. Remained only a violent attempt to confuse the desire medium-sized and small speculators, following the main trend and the bear. Violent actions of European powers to maintain the course was to conduct foreign exchange interventions by selling dollars in the foreign exchange market.
As history has shown, foreign exchange intervention can be as long, long day, or momentalnymi, long few seconds. Long intervention forced the ECB to dismiss the market large quantities of dollars, as in this case met the desire of all parties, namerivavshihsya exchange currency in the day, this was mainly on exporting and importing. In a lengthy ECB monetary intervention, usually begins slowly to meet the current requests for dollars, raising the rate for 15-40 points for 5-15 minutes. In total rate rises, as a rule, at 120-180 points for the day.
In the case of a sudden currency intervention ECB at one point dropping to the market a considerable amount of dollars, than immediately meets the current market demand for dollars and the remaining amount of an excess demand for euros, the price, which increases dramatically. This intervention resulted in a drastic course of isolation from their former values and temporary stabilization of its level of 90-150 points more original. Later, the stabilization of the course at this level might not happen: a course can quickly rolls back to a half-off, but it may gradually deduct points points. Further evolution rate will depend on the hands of market forces that shape demand and supply in the market, as well as follow-up the ECB.
The key to speculators, of course, are not the consequences of the intervention, but rather the very intervention. The sudden intervention undertaken by the ECB, is aimed not only to maintain the course, and cooling the hot heads of medium and small speculators, using the shoulders 40-100, and cling to the trend. Everyone is well aware that no place, no Dealing Center, is not capable of such a situation to close an open position on the stop-loss of 25-40 points. The office, in which speculators holding accounts may, in general, reduced to zero, or close the account, even if the rate was at an artificially elevated level of just a few seconds. It follows that the sudden intervention ECB could lead to a complete disaster and bankruptcy bills speculator. This is the most dangerous.
Experienced traders, did not recommend that work on the newly emerging markets, whose history has not yet made up of three years or more. They believe that, first, the young markets have not yet formed a group of professional participants of the bulls and bears in the market resulting in less predictable, and secondly, did not determine the potential effect on the market to external factors, including actions central banks and supervisory bodies.
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