Euro tumbles

Yesterday was another bad day on the markets for the Euro. The European Central Bank withdrew longer term facilities from European banks, and triggered fears in the markets. The currency slid further.

The ill judged Euro experiment is doing considerable damage to Euroland economies. The southern states need to cut their wages substantially to compete with Germany and the Northern countries. They are being forced to cut public spending, whilst lacking the tools to generate a strong enough private sector led recovery to compensate. Shorn of the ability to devalue to sort out their relative cost base, the actions they have to take are deflationary. Unemployment is already very high.

When Germany adds her own belt tightening and the ECB seeks to take away liquidity it adds up to a bad prospect. The Eurozone needs more growth, but faces more obstacles to growth. Meanwhile the European politicians think it all needs another large dose of financial regulation to put it right!


  1. Stuart Fairney
    June 30, 2010

    The mad thing about all this is that the Euro project is a failure and it is in its twilight stages. The political elite, for reasons of vanity will cast millions into unnecessary poverty. It will still fail.

    And in a few years the whole nonsense will be rolled out again in another form like the corpse at the end of a film that just won't die. Remember the collapse of SNAKE or the failed ERM and one or two other schemes I can't recall; when the Euro goes down, some other ham fisted nonsense will be there to replace it. Soon enough with the usual excuses about converting national currencies to the new Euro at "the right rate" or some other nonsense.

    And was it just me, but did seeing Herman van whatisface rather self-conscious photo shoot at the recent G20 make you think "Who the hell elected you? What are you doing there? You don't represent me you pettty bureaucrat now scuttle of back under the rock"

    1. StevenL
      June 30, 2010

      Maybe it'll be like a Franco-German version of Roosevelt making compulsory purchases of everyones gold then revaluing the peg in the depression.

      That could start a riot or two in club med!

  2. Iain
    June 30, 2010

    The inability of EU countries to devalue to assist their economies comes along with countries not having a revaluation of their currency, eg like Germany. So the devaluation of the Euro is going to make matters worse, for here we have an export surplus country who rather than being made to help the world out of the recession, is instead going to be piling on the exports with a devalued Euro. Germany is a wolf in Euro sheep’s clothing. Unfortunately the British political establishment don't seem to care about our exchange rate, or that countries are using the exchange rate to hollow out our economy.

  3. Alan Jutson
    June 30, 2010

    Things change daily in Europe. Llets see where we are in 6 months time.

    On another subject, Perhaps its because I am getting older, but not very keen on your new format and working of this site.

    Posts are now limited in length, leading to frustration as you try to precis points too far, otherwise post comment is not allowed at all.

    Other blogers replies to an original posted comment do not now seem to be notified by "e" mail to the originator, so you cannot enter into a debate, refute, agree or argue a point further to other bloggers,, or indeed be even aware that someone else has responded.

    Replies to posts on the site are not as clear as before, just an arrow rather than a block shade change.

    John. Aware you should always be looking for improvemjent and change, but think modifications made recently detract from the original, easy working of a previous excellent site.

    Would have made comment earlier, but been away on holiday for 4 of the last 6 weeks, and wanted to see if any further modifications were in hand.

    Reply: I agree. I did not ask for any changes or improvements, other than once seeking better security when the site was attacked. I will make enquiries.

    1. Acorn
      June 30, 2010

      JR; while you are enquiring, ask your web guy to make it so the "reply" button opens in a new window. It is a lot easier for us when we are checking back for replies to older posts; which we no longer get notification of. Your old mate at Burning Our Money (who does not like you quoting cash numbers in budgets) uses this system. Meanwhile, here is a picture of some currency trends against gold. You can change the base to any currency including SDRs for a global comparison; but gold is better. <a href="*&fd=1&fm=1&fy=2006&ld=31&lm=12&ly=2010&y=daily&q=volume&f=png&a=lin&m=0&x=&quot; rel="nofollow"&gt <a href="http://;…” target=”_blank”>;

    2. StevenL
      June 30, 2010

      Must be an age thing, I never batted an eyelid.

    3. Alan Johnson
      June 30, 2010

      Thanks Alan for raising this and thanks too John for following it up.

  4. Javelin
    June 30, 2010

    Lots of things to say about the EU banks and Governments. I believe a double dip is inevitable – given a 20-25% cut in Government spending. I have no idea how the optimists could believe otherwise when we have growth of 2.5% of GDP and a reduction of 5-10% GDP forthcoming.

    The leaked Treasury estimates of 500-750K public sector job losses was predicted. I was surprised by the 250-500K private sector job losses. I was predicting 250K – but my figures were just outsourcing and consultants and not from the negative multiplier on the general economy.

    But there in lies the issue with the EU. I did not count a negative EU multiplier which may be a further 100-250K jobs would not be too far out of the question.

    1. Javelin
      June 30, 2010

      I also think the effects of QE have been simply to put off interest rate rises in the hope that the world economy would recover – but it hasn't. The REAL reason for QE was banks solving the Governments problems of being unable to sell bonds in the secondary bond makets at low interest rates – by selling them back the Government. QE solved the banks liquidity by being given cash in return for bonds. How this really worked was the bond market makers in the banks fed information back to the BofE that the secondary markets were going to push interest rates up on bonds. The BofE said the reason for QE was to help liquidity – but they had lots of options to do this 0 Qe just happened to solve their problem as well.

      Now we're in a situation where the global economy has not recovered, QE can't go on forever (as the BofE is building up a huge backlog of bonds) and the secondary bond markets are going to push prices down and yields/interest rates up.

  5. @JohnnyNorfolk
    June 30, 2010

    I see the whole EU as the cause of the problems nott the solution.

  6. Amanda
    June 30, 2010

    Yesterday, I went to a talk by Ms Sarah Wu, Director General of the Hong Kong Economics and Trade Office in London. As I am now ready to build more Asian partnerships with my business.

    Two things particularly struck me:-

    1. Hong Kong is built on British Values, (of the old kind) Ms Wu's words not mine. The success and vibrancy of Hong Kong is therefore a reminder of what we could achieve if we renounced European values and reclamed our own. In the same way as Henry VIII did, and which Elizabeth I (also short of money with a mess of an inherited country) capitalised on so brilliantly.

    2. Ms Wu gave us the marketing plan for Hong Kong. Their strengths and weaknesses, the opportunities they wanted to capitalise on and the threats to be overcome. She listed the industries Hong Kong wanted to encourage and invest in (I do mean invest in the real sense no New Labour investment). Along with Mr O's austerity budget, where is the UK marketing plan for growth? Is that dear Vince's responsibility?

    It was very clear from many of the business people there, that we are fully aware of what is needed, and that a huge number of us are willing to go out and play our part. (When we are discussing 'fairness' in taxation perhaps we could bring reward for responsibility back into the equation – those who will take a risk to help the country deserve more tax breaks, than the 'bums' who sit on their backsides incurring their own 'poverty'.)

    It is the Government's job to give us the platform for business success. And a key part of that job is creating the right 'story', the clear focus of vision, and batter away all negative communication that keeps the myth of socialism going. The Colation has just got to do something about the BBC, and quickly – they are not the offical opposition, and they are there to promote British cultural life and values (the ones of such benefit to Hong Kong). If you do this, and extol a sensible marketing plan, we will all be in a stronger position to face down the 'evil' EU, who is holding back our self-determination, freedom and ability to earn a good living.

    PS My wish was for England Football to get what they deserved – they did. So maybe we should pay more recognition to others sports where reward and responsibility are more evenly balanced. And for that, at the moment, I'd like to congratulate our cricketers !! And, any other British sports people who are enjoying success at the moment and go unnoticed.

  7. Peter van Leeuwen
    June 30, 2010

    Good advice is welcome when originating from unsuspected sources. If Mr Redwood were to share European ideals (some degree of political union, which the continent has shared since the 1950ies) , he would be listened to. But now he is not. The euro may have its hiccups and problems but the overriding European ideal will keep the EU on course in spite of whatever mistakes are made on the way.

  8. Acorn
    June 30, 2010

    For some reason we have been sent this email today. You should read it. This outfit sends it out to 12,000 (twelve thousand) NHS – so called – managers. It is priceless. It tells you everything about the mentality of the NHS.
    Then have a look at this load of self serving crap.

    The sooner we privatise the whole…. lot of them the better. Introduce a basic state funded health insurance system run by the private sector; possibly Swiss style. If little Beyonce wants her breasts enlarged because she is suffering psychological trauma in the playground; mum and dad pay; not me.

  9. adam
    June 30, 2010

    Do you support the Euro or not?
    You wrote an article in the Times saying how important it is

    Reply: I was a strong opponent of its formation, and am strongly against the UK ever joining. Now there is a Euroland I want them to sort out the problems for their sake and ours.

  10. christina sarginson
    June 30, 2010

    Things are changing constantly with fluctuations in currencies across the world; I hope this situation is short lived. Can I take this opportunity to thank you John for your daily blogs I find them very interesting and informative, I am learning a lot and passing this onto others.

  11. billyb
    June 30, 2010

    Wouldn't you say your government's actions are bound to be deflationary too?… what gives you any optimism that private sector growth will appear?

  12. adam
    July 1, 2010

    Now, Ken Clark's Community rehabilitation plan for rapists, murderers, gang members and psychopaths, can someone explain this to me.

    Please, does it mean that criminals will be sent to live with the MPs behind the armed guards in the gated community of Parliament?
    Could it be the MPs contribution to their EU citizenship community service to mentor these troubled men and teach them right from wrong. Show them how to be good, upstanding, respected members of the community.
    Perhaps David Cameron could take some of the hardest and roughest of these hoodies back to live with him in his gated community of Downing Street.
    Maybe Ken Clarke could take some of them on an outing to the military protected, gated community of Bilderberg, where they could learn about international business, politics finance and current affairs and inspire them to be honest, open, upfront individuals again.
    A trip to the headquarters of the EU empire could teach them a lot about the merits of anti imperialism and the horrors that totalitarian political ideologies have reaped on human civilisation.

    Thanks in advance.

  13. Lindsay McDougall
    July 3, 2010

    If the PIIGS defaulting (a little bit) and leaving the EuroZone is the price to be paid for ending the current crisis, is that not a price worth paying?

    Meanwhile, the psyche of German leaders never fails to amaze me. I have just finished watching Germany thrash Argentina 4-0. Angela Merkel was on the touchline beaming with delight. Yet this is the same lady who denies her people the return of the Deutsche Mark when there is a 2:1 majority in favour.

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