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The relatively high interest rates set by the European Central Bank have attracted substantial investment at a time when both the US Dollar and the British Pound have been weakened as rates have been cut in order to help stave off recession. During this time, I have been somewhat mystified at the financial belief in the Euro since the economic fundamentals of many of the leading Euro-nations are just as troubled as those prevailing in the US and UK.  

Comes the news that the euro has just suffered its sharpest drop in four years as a blizzard of weak data from Germany, Belgium, France, and Spain spark fears that economic contagion may be spreading from the Anglo-Saxon world to Europe. I think the economic contagion has  been there all along and it’s only now that this is being recognised by the money markets. Given the different issues confronting these individual nations, it will be interesting to see how the ECB deals with this unfolding crisis – the "one size fits all" mentality behind ECB policy will become exposed, in my view, as Euroland endures the global credit crunch and its fissures of economic instability are opened up for all  to see – just as they have been in the US and UK. Still, on the plus side, it’s never been a better time to buy property in Spain, drink French wine, eat Belgium chocolate and..erm….watch German comedy!

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9 thoughts on “EURO NOSEDIVES!

  1. >>Comes the news that the euro has just suffered its sharpest drop in four years as <<

    Some massive wishful thinking here – from both you and the Daily Telegraph. The Euro’s "plunge" was in fact less than 3%, down from its all-time peak of $1.6 which it reached three days ago!. That still leaves it 27% above its position vis-a-vis the Dollar two years ago.

    The strange thing is that European industry has managed to perform so well in the context of the soaring Euro over the past 2 years. German automotive sales to the US even showed strong growth in this period.

  2. Based on the economic facts coming out of Germany Spain Belgium and France I suggest that it is you Noel who is engaging in wishful thinking. My argument here is focused on how a central bank (ECB) can have an effective interest rate policy when it is in fact dealing with several very different sets of economic needs in several countries. Please explain to me how this one works – economically…!

  3. This "massive drop" in the value of the Euro is nothing more than a technical correction, it happens in a trending market. With the dollars weakness, on the back of the sub-prime disaster, I feel the upward trend will continue.

    DV are your feelings on the currency based on economic fundamentals or your dislike of European unity?

    The UK is affected so because of the culture here for home ownership, which isn’t so prevalent with it’s continental neighbours, but the more alarming issue that has yet to come to the fore is the fact that the average non mortgage debt in the UK is something like GBP24,000 per household. That’s huge when you consider the average salary here is not a lot more than that (on a whole UK basis). If defaulters appear wholesale in that sector the we can only guess at the consequences.

    Suffice to say a pint of Guinness in Dublin is not going to be any cheaper for me in the forseeable future!

  4. Are the economies of France, Germany, Spain, Italy or even adding Slovakia, Poland, Czech Republic for example any more diverse than say New York, Minnesota, Washington, Ohio? So why should the ECB’s job be any harder then the Federal Reserve Bank in New York?

    Economic differences even exist within countries, check the North/South divide in Britain, Italy for example. The difference in GDP per capita bewteen east and west of a small country like Slovakia is huge.

    You just have to get over your anti-federalism, economically Europe is just one big operation.

  5. One year ago the euro was about 68p. Now it’s about 80p. I make that a 17% increase. So not much sign of weakness there.

  6. Peter, I’ll grant you that but my point is that the underlying economic conditions in EU land are worse if anything than in the UK and US! I don’t understand quite why the money markets went so big on the Euro-rouble – let’s see how good it is on six months.

  7. >>conditions in EU land are worse if anything than in the UK and US! I don’t understand quite why the money markets went so big on the Euro-rouble<<

    Maybe it’s because they realise that Euroland is not in the hands of men who waste around 300 million Dollars every day for five years on a needless war.

    (for how many hundreds of thousands of people would that sum buy health care?)

  8. my point is that the underlying economic conditions in EU land are worse if anything than in the UK and US

    Mmm

    The US is already in recession and the UK will shortly join it. Euroland is continuing to grow, albeit with chronically high unemployment.

  9. What would be the base rate if the UK were to join the Euro? Can anybody argue that it would be good for Britain – seriously?

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