TELEGRAPH 26.2.09
An ever weaker union (Leading Article)
Far from being ready to take on banking regulation, the EU may yet
struggle to keep its currency union together.
Telegraph View
José Manuel Barroso, the European Commission president, has proposed
a pan-European regulatory system which would cover the City of London
and all other financial centres. He wants to see sweeping changes to
how banks, insurers and markets are supervised to apply lessons from
the credit crunch. Characteristically, the Commission has simply not
caught up with what is happening inside the EU. The member states are
not coming together like circling wagons under attack in the Wild
West; rather, the Union is fragmenting. The eurozone itself is under
threat.
These are not merely the observations of a newspaper that has always
been deeply sceptical about the European single currency. The
evidence of its unsustainability is growing daily and is causing
serious alarm even among the most ardent supporters of the EU.
Earlier this week, Jean-Claude Trichet, president of the European
Central Bank, conceded that the eurozone is under extreme economic
strain. Weaker countries, he admitted, are feeling the pressure of
staying within the currency's parameters.
While no one in the eurozone wishes to contemplate it, the
possibility is growing that one or more countries will leave, dealing
a severe blow to the concept of "ever closer union". Germany, as the
eurozone's surplus economy, should be bailing out those in
difficulty; but the Germans have made it clear they do not intend to
do so.
In a gloomy speech to the London School of Economics on Tuesday,
Joschka Fischer, the former foreign minister of Germany, said
European nations are retreating into their nationalist shells in the
face of the crisis. But it was always going to be thus.
The euro was conceived when the global economy was booming and its
true test was always going to be in a time of want. That time has come.
==========================
TELEGRAPH Blogs - Dan Hannan 26.2.09
Will the euro survive?
Posted By: Daniel Hannan MEP
Listen to the swelling tumult. The euro won't last! It has only ever
known prosperous times! This is its first trial, and it will fail!
After its hubris comes its nemesis! Woe, woe woe, sings the chorus.
So far, I have refused to join in. Brussels, it seemed to me, had
invested too much in the single currency, politically as well as
economically, to let it fail. If the EU had been chiefly interested
in the prosperity of its citizens, it would never have launched the
euro in the first place. Eurocrats would surely hold the currency
together, whatever the cost to the ordinary citizen.
Now I'm starting to wonder. No less a figure than Karl Otto Pöhl, who
ran Germany's Bundesbank with almost unalloyed success in the 1980s,
is predicting a default by one of the smaller countries, probably
Greece. Were this to happen, says the tough old central banker, "the
exchange rate would go down, 50 or 60 per cent and then interest
rates would go sky high because the markets would lose all confidence."
Pöhl is no Euro-sceptic. On the contrary, he is often referred to as
one of the fathers of the euro: his anti-inflationary policies
created the conditions that made monetary union possible. True, he
was never a dogmatic Europhile. He was alert to the potential dangers
of a European Central Bank that lacked the tough monetarism of the
German Central Bank. If the euro was to work, he felt, it had to be
soundly based.
Which is precisely what makes his apostasy so damaging. The support
of people like Pöhl has always been critical to the credibility of
the single currency. As long as Pöhl was for it, we could all feel
that the spirit of the Bundesbank was infusing the ECB. Suddenly,
Europhiles are crying "Pöhl, Pöhl, why persecutest thou me?"
The euro rests, ultimately, on the sufferance of the German
electorate. If German voters decide that they are not prepared to
bail-out governments that lack their fiscal rectitude, the whole
thing is over. Finished. Vorbei.
========================
RUSSIA TODAY 26.2.09
Currency controls mulled as outflow continues
Capital outflows from Russia continue to suggest that banks and
companies are shorting the Rouble on a speculative basis. That's
leading some to consider the imposition of some form of currency
regulation.
The Russian Rouble has lost half of its value against the US dollar,
with experts blaming the government's policy of gradual devaluation.
It created a long term one way bet, for those with access to funding,
to make a lucrative Rouble return simply by converting it into
another currency. They contrast what has unfolded in Russia with
other oil exporting economies like Norway. Its currency slumped 37%
in October and has already started strengthening. Igor Nikolaev,
Partner at FBK sees continued pressure on the Russian currency.
"The Rouble is likely to see further devaluation due to the infusion
of funds into the economy. That's because anti-crisis spending is
continuing - with another $50 Billion in the 2009 budget intended for
the banking system."
The outflow of capital from Russia has reached nearly $130 billion
dollars. Most it happened in the fourth quarter of 2008. While the
government continues to inject liquidity into the financial sector -
it's also looking at how to prevent further capital outflow.
One option is currency regulation, and another way to stop people
switching out of Roubles is to raise interest rates. Mikhail
Delyagin, Director of Science at the Institute of Problems of
Globalization, thinks the Central Bank of Russia is unlikely to raise
interest rates.
"To raise interest rates further is impossible. It will kill the
economy - that's already happening. Therefore there is a need to use
currency regulation and control over government economic aid.
Financial regulation can't be partial, it should be complex."
But either measure is likely to drive investors away from Russia -
and currency regulation could even lead to the return of the black
currency market.
Thursday 26 February 2009
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