Busch: French and German Officials—Euro Our Currency, Your Problem
Engaging in what I perceive as their only avenue to grow, Germany’s Finance Minister Schaueble and France’s PM Sarkozy made statements intimating that the weak Euro is not an issue for the country’s in the European Monetary Union.
Given the intransigence of the ECB to aid southern Europe, this is the only path available to countries in the Euro group to avoid an economic slowdown as they enact austerity measures.
The decline in the euro has been the main driver of Germany's economic growth, Korean press has quoted Germany's finance minister as saying according to the Korean Chosun Ilbo newspaper. "What's interesting is that most of the people concerned about the euro's future do not live in Europe," Wolfgang Schaueble was quoted as saying in the interview. (MNI).
Not to be outshone, French Prime Minister made the following statements according to Reuters headlines that read:
- RTRS-FRENCH PM - NOT CONCERNED BY EURO FALL, HAVE BEEN CALLING FOR WEAKER EURO
- RTRS-FRENCH PM - I HAVE NO WORRIES ABOUT THE CURRENT EURO/DOLLAR RATE
"I have not changed my position for years. With the president, we were complaining about the fact that the level between the euro and dollar did not correspond to the reality of the economies and was strongly handicapping our exports." This is about the clearest indication that I’ve seen indicating the strategy for the Eurozone. It is the tried and true method for getting out from under a debt load: generate growth via competitive devaluations to increase tax revenues to service the debt while inflating your way out of the debt.
The twist to this story is that the central bank is not along for the ride and enabling the inflation. (Granted, they are engaging in a qualitative easing of credit swapping via their bond purchases which is similar to the Fed buying MBS.)
Also today on the negative newsflow for Europe, we had rumors of a French bank with large derivative losses and Hungary with large fiscal problems, both highlighting contagion concerns. Both have denied the rumors, but the damage is done. To top things off, we had smaller than expected US NFP gains for private payrolls.
Why does this weaken the Euro?
It’s Risk-Off: sell equities, buy bonds, buy US dollars and yen.
The Euro has made new lows against most major currencies and is likely to have a weekly close that will be flashing red for a larger move downwards for momentum sellers.
Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.