|Man Without Qualities|
Saturday, June 04, 2005
Could a deep swoon of the euro help Gerhard Schroeder by making German goods and services cheaper in the export market? The euro is swooning - and just may melt down completely:
An economic adviser to Jose Manuel Barroso, the President of the Commission, gave warning that the situation was "dangerous" and that some countries would want to leave the currency. For the first time financial markets are speculating that the euro may collapse, by offering variable long-term interest rates on government debt in different eurozone countries. ...For all that, a true euro meltdown is unlikely, but could a deep swoon help one desperate politician: Gerhard Schroeder? There have been signs that Schroeder will try to formally "run against the Euro." But it's unlikely that Schroeder can win the election by campaigning against the Euro. Everyone in Germany knows that his government has embraced the Euro in the past. How can he make his change of mind plausible? It's true that Schroeder's rather unpleasant character lends itself to turning on former and appropriate allies - such as the US - for political gain. But running against Bush's war was different: the war was overwhelmingly unpopular in Germany and everyone found Schroeder's opposition to it believable. The present situation is totally different.
Some of the current economic malaise is directly attributable to the rise of the Euro and ECB Unfortunately for Mr. Schroeder, most of the world market, his own national economy and public opinion trends don't work fast enough for him to experience much of a surge before the likely elections in September. Even if the Euroswoon lasts and orders for German exports pick up, it would take many months for the psycholgical effects from those developments to transform a substantial piece of the electorate. So the most likely effect of the EU and Euro trouble will probably to just generally aggrevate the impression that things have not gone well for Germany on Mr. Schroeder's watch. In other words, the big winner in Berlin from the recent Eurotroubles will likely be Angela Merkel.
As noted in a prior post, Warren Buffett and his Berkshire-Hathaway are likely to be among the biggest short-term financial losers from the recent demise of the EU Costitution. Berkshire has over $20 Billion bet against the dollar - much of it in favor of the euro. A continuing deep Euroswoon sure seems to likely to correlate with a deep Buffett swoon.
UPDATE: From the Wall Street Journal:
Some studies by the European Central Bank show that a 5% drop in the value of the euro against the currencies of major trading partners can add -- if sustained over one year -- between 0.5 percentage point and 0.9 percentage point to economic growth. Late Friday in New York, the euro was ... down about 10% against the dollar from the euro's record at the end of last year. .... A depreciation of the euro could result in stronger economic growth than expected in the 12-nation currency bloc. In new forecasts last week, the ECB pegged growth at roughly 1.4% for this year and 2% next year. But that forecast is based on a euro of $1.29 -- nearly seven cents, or 5.5%, higher than its level late Friday. .... It isn't clear how long and to what extent the current political turmoil will continue to weigh on the currency. ... "The question is: What is temporary? What is permanent?" said Otmar Issing, the ECB's chief economist, speaking to reporters in Frankfurt Friday about the euro's recent drop. The comment suggests the ECB isn't ready to revise forecasts based on the recent moves in the exchange rate. ....
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