The future of euro looks like more elusive

Forecast exchange rate between the euro remains in question

In brief: The exchange rate euro today and the future of the euro becoming the main problems of European countries on the long period of time.

Euro Future … The European plan for protecting the single currency in the amount of 750 billion euros ($ 950 billion) may have been received with euphoria, but he was born in absolute despair. When, in early May, leaders of Eurozone countries met to address the problem, they were faced with a hideous reality of the threat hanging over the government bond markets of southern Europe, spread to the European banking system with the prospect of contamination of the world’s credit markets.

This plan was aimed not only at preventing the debt crisis in Greece, spreading to Portugal and Spain. It was intended to curb the growing financial panics, which could once again plunge the world economy into a swamp, from which she had difficulty trying to get over the past two years. Therefore, European leaders made the right decision – to react swiftly and promptly. At once, nobody could accuse them of a lack of activity. They pledged to establish a fund, which includes? 60 billion in bonds secured by the EU, “440 billion guaranteed by the countries of the euro area, and possibly up to? 250 billion from the IMF. European Central Bank (ECB) – the basis of monetary orthodoxy – embarked on a path of apostasy and began to buy government bonds in order to reduce the cost of borrowing for the most problematic countries in the Eurozone. Soon after this massive demonstration of financial strength earned. Bond markets calmed down – the probability of a cascade series of default rates declined. Great desire to declare victory and move on. But work is not done even half. This plan allows you to gain time, but does not eliminate the fiscal and structural weaknesses, which became the cause of these troubles in the euro area. Worse still, it brings with it risks that Europe will have to deal in a matter of urgency. The first step is to recognize that the plan lacks detail. No one knows exactly as collateral for a loan will work or how the IMF will provide access to their funds. And this is important because up until the system is not working, replacement is the ECB, which now began to buy government bonds on the open market. The ECB insists that its activities are exclusively short-term measure on the paralyzed markets, and states that he remains independent of the aggressive policies as before. This is already poistrepavshiysya image will be impossible to maintain if the ECB’s long throw lifeline liquidity wasteful States. Even more important is the issue of moral hazard. No need to be Germanic taxpayer to worry about that the result of asylum weak euro-area is to reduce the pressure on them in reducing their deficits. Euro-zone states, which are now in a quandary now know that in the worst case, they have a chance to escape. In the short term – it is an incentive to evade the difficult decisions to be taken. In the long term – is a recipe for disintegration of the euro area. Having a choice in favor of collective security, Europe must now create a collective discipline to avoid abuse of its reserve fund. Some security measures are already in the plan itself. Portugal and Spain were forced to announce additional measures tightening of fiscal policy. Any country that takes money from the new stabilization fund, would agree on a program management with the IMF, as is already done Greece. If unwise countries want to get money from the fund rescue, they will have to import the discipline, which establishes a special body.

But, of course, this will be enough. Euro-area to find a way to correct behavior before the waste will be critical. This is the main problem – largely because history is replete with the euro failed attempt in this direction. The creators of the single currency believed in the position of “failure to provide assistance, as well as in the” Pact on Stability and Growth Pact. Terms suffered an absolute failure. Sanctions for misconduct were unreliable: scare the country with a huge budget deficit heavy fines – it’s the same thing as stepping on a person’s fingers, hanging on the cliff. And too many countries, including major members of the Eurozone, admitted non-compliance with these rules with impunity. Worse yet, nobody actually believes in the position of “not providing assistance” – and for this reason the financial markets for a long time could not distinguish between wasteful country from cheap. What could be the replacement? The European Commission has already proposed several ideas, different from the more intrusive prompt collective monitoring of the national budget and projected a system of incentives, in which waste is punished priderzhaniem EU funds. Good start, but these ideas still has drawbacks. Eurozone also need to think about policy instruments – for example, deprivation of wasteful countries the right to vote in any decision relating to the single currency. Also the euro area need mechanisms to neutralize the effects of failures, such as a stable system of sovereign debt restructuring.

Hardest to find the political will to cope with the waste. This struggle will develop into a conflict. German voters have shown their willingness to punishing leaders who spent their money to rescue the helpless foreigners. So Germans are demanding that countries have adopted stringent measures to reduce budget deficits before receive any money – a requirement that kotoroeimozhet plunge Europe into deflation and stagnation. On the other hand, the unrest in Greece remind us that democracy will not curb the mass uprisings and protests. Even if you understand the need to reduce deficits and modernize the economy, nobody can say with complete certainty what will happen earlier, growth, or general rebellion. The only thing that seems clear is that all this will lead to increased intervention in the policies of countries. But how exactly will this intervention? The French have long fought for a joint economic management with a broad mandate with respect to fiscal and monetary policy – one which would have alarmed many partners in France. The Germans want a different kind of centralization, rules-based penalties for waste. However, most of Germany in this regard requires quite a bit. Just as the weak euro-zone countries in the southern part of the need to make their labor markets and goods, freer and increase their competitiveness, to the States with a positive trade balance, such as Germany, the need to stimulate domestic consumption. Most likely, we will have a nasty political fight over how to control Europe.

Anrey Torbinski
2010-05-31 11:20, Currency news.

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