Can the deterioration of the economy to the euro Bringing parity with the dollar?
Mar 2, 2009
An incident in Argentina during 2008 and that really struck me powerfully the attention when the fears about the health of the local economy to the Argentine invasion. Traditionally, when the uncertainty take over the Argentine economy, savers are turning to the massive buying of dollars as the dollar has traditionally been one of the few shelters capable of protecting the wealth of the population. In the new episode of uncertainty, the Argentines resorted again to a foreign currency to protect their savings, but the currency was not chosen but the euro / dollar.
I must clarify that this episode was clearly observed in Argentina, was not repeated at subsequent turbulent times of the year, and rarely recur at least in the short and medium term.
One of the lessons that we are delivering the international financial crisis is no doubt that the economy of the euro has misled us to believe that it had greater strength than it actually possesses.
Certainly many will wonder what I mean when I talk about the deception caused by the economy of the euro area. It's just that the crisis erupted, many thought that we were facing the end of the world leadership of the U.S. economy and with it the front end of the dominance of the dollar as the currency leader. Given the vacuum that would result from the collapse of the U.S. as a world leader, the euro area, which suggested some consolidation after nearly a decade working as promised to take that leadership.
In this context, the euro emerged as the new currency capable of challenging the leadership of the dollar. Thus, as many recall, grazed the euro to U.S. $ 1.6 in April 2008 and remained near that value until the end of July began to fall, with attempts to recover through until reach the $ 1.27 today.
But the euro area is not only involved with the toxic assets that caused the subprime crisis in the U.S. infected and that its financial system, but has also been affected by the slump in economic activity in the country demonstrating the high level of dependence on the U.S. economy and has little capacity to domestic demand in the euro to compensate weakening external.
This is demonstrated by the weak economy of the euro in recent times has even questioned the sustainability of both the economic bloc as such (due to the negative consequences that this type of situations experienced by some members of their economies, given the stiffness of action implies that membership), and even the sustainability of the euro.
The truth is that after having lost more than 20% of its maximum value, there is great debate about the evolving relationship between the euro and the dollar. In this connection there are two factors make it likely that the continued weakening of the currency of the euro in relation to the dollar and that the continuity of the context of global uncertainty and the prospects of further deterioration in economic conditions in the eurozone.
Regarding the first factor, there is a high probability that the context of uncertainty remains over much of this year. Not only has complicated the outlook for recovery of the U.S. economy and more to the euro, but has not yet left behind the possibility of occurrence of new episodes of crisis in the banking systems. This fragility is not likely to think of a sustainable recovery in the value of the euro.
With the economic situation of the euro is concerned, the macroeconomic variables show a continuing deterioration. This has meant that economic confidence in the euro continues to fall on his indicator and minced and placed in 65.4 points, its lowest level since it started being measured in 1985.
The economies of the region have experienced during the fourth quarter of 2008 a sharp contraction of its product, but the prospects are even worse for 2009. Most projections anticipate a contraction in GDP for the euro that could exceed 2%.
The weakness in external demand has been one of the determinants of economic contraction in the eurozone. This weakness of the external front is reflected in the current account of the region who lost his position surplus in 2008 and ended with a deficit of 0.7% in terms of GDP.
But not only the euro-zone economies are affected by macroeconomic weakness, are also threatened by the situation that the economies of Eastern Europe that can strongly affect the region. In Austria, Hungary and Romania, the fiscal situation and the health of the banking system is fragile. Since the major economies of the eurozone, has secured support to prevent a crisis situation. Not that Germany and France are countries such solidarity in these times to think about helping the weaker economies only by charity, but a possible collapse of these may involve a negative impact ahondarÃa the recession of the economies with the euro the close ties that exist (mostly by the financial sector).
In this negative context, the hope for the euro comes from what I can do USA. The U.S. economy has better prospects for economic recovery in the euro, but it may favorably affect the recovery of the euro because it increases the prospects of economic recovery in the euro given the dependence of the strength of the U.S. economy. However, the difficulties facing the U.S. economy despite the many schemes launched, making it difficult to estimate how much time and magnitude with which it can recover. Moreover, the recovery of the U.S. economy may not benefit the euro as it would imply an abrupt change in the direction of monetary policy in order to avoid the generation of a new speculative bubble and that inflationary pressures are excessive, rioja which would encourage the strengthening of the dollar.
In this negative context to what extent the euro may fall in the euro currency?
While the euro has lost value significantly from their peaks, many analysts believe that may still remain devalued against the U.S. currency. The more extreme the proposed article published in the Argentine site "Infobae" raised the possibility that the euro back to parity with the dollar. In this connection, the site reflected the statements of Argentine John Mauldin, president of Millennium Wave Advisors, for whom the collapse of Eastern Europe will have a devastating impact on European banking. According to Mauldin, "Europe is much more at risk than the United States to the lack of financial capacity of many countries to nationalize some banks, whose balance sheets outweigh their GDP."
Despite the poor prospects of the Euro, it is difficult that may break the barrier of U.S. $ 1.20. This act probably as a containment barrier for the European currency. And if the bankruptcy of U.S. $ 1.20 Euro? So it may be dangerously close to parity with the dollar. For these speculations are likely to materialize, the first half of this year will be crucial. Beyond this period, these possibilities will be diluted.
I must clarify that this episode was clearly observed in Argentina, was not repeated at subsequent turbulent times of the year, and rarely recur at least in the short and medium term.
One of the lessons that we are delivering the international financial crisis is no doubt that the economy of the euro has misled us to believe that it had greater strength than it actually possesses.
Certainly many will wonder what I mean when I talk about the deception caused by the economy of the euro area. It's just that the crisis erupted, many thought that we were facing the end of the world leadership of the U.S. economy and with it the front end of the dominance of the dollar as the currency leader. Given the vacuum that would result from the collapse of the U.S. as a world leader, the euro area, which suggested some consolidation after nearly a decade working as promised to take that leadership.
In this context, the euro emerged as the new currency capable of challenging the leadership of the dollar. Thus, as many recall, grazed the euro to U.S. $ 1.6 in April 2008 and remained near that value until the end of July began to fall, with attempts to recover through until reach the $ 1.27 today.
But the euro area is not only involved with the toxic assets that caused the subprime crisis in the U.S. infected and that its financial system, but has also been affected by the slump in economic activity in the country demonstrating the high level of dependence on the U.S. economy and has little capacity to domestic demand in the euro to compensate weakening external.
This is demonstrated by the weak economy of the euro in recent times has even questioned the sustainability of both the economic bloc as such (due to the negative consequences that this type of situations experienced by some members of their economies, given the stiffness of action implies that membership), and even the sustainability of the euro.
The truth is that after having lost more than 20% of its maximum value, there is great debate about the evolving relationship between the euro and the dollar. In this connection there are two factors make it likely that the continued weakening of the currency of the euro in relation to the dollar and that the continuity of the context of global uncertainty and the prospects of further deterioration in economic conditions in the eurozone.
Regarding the first factor, there is a high probability that the context of uncertainty remains over much of this year. Not only has complicated the outlook for recovery of the U.S. economy and more to the euro, but has not yet left behind the possibility of occurrence of new episodes of crisis in the banking systems. This fragility is not likely to think of a sustainable recovery in the value of the euro.
With the economic situation of the euro is concerned, the macroeconomic variables show a continuing deterioration. This has meant that economic confidence in the euro continues to fall on his indicator and minced and placed in 65.4 points, its lowest level since it started being measured in 1985.
The economies of the region have experienced during the fourth quarter of 2008 a sharp contraction of its product, but the prospects are even worse for 2009. Most projections anticipate a contraction in GDP for the euro that could exceed 2%.
The weakness in external demand has been one of the determinants of economic contraction in the eurozone. This weakness of the external front is reflected in the current account of the region who lost his position surplus in 2008 and ended with a deficit of 0.7% in terms of GDP.
But not only the euro-zone economies are affected by macroeconomic weakness, are also threatened by the situation that the economies of Eastern Europe that can strongly affect the region. In Austria, Hungary and Romania, the fiscal situation and the health of the banking system is fragile. Since the major economies of the eurozone, has secured support to prevent a crisis situation. Not that Germany and France are countries such solidarity in these times to think about helping the weaker economies only by charity, but a possible collapse of these may involve a negative impact ahondarÃa the recession of the economies with the euro the close ties that exist (mostly by the financial sector).
In this negative context, the hope for the euro comes from what I can do USA. The U.S. economy has better prospects for economic recovery in the euro, but it may favorably affect the recovery of the euro because it increases the prospects of economic recovery in the euro given the dependence of the strength of the U.S. economy. However, the difficulties facing the U.S. economy despite the many schemes launched, making it difficult to estimate how much time and magnitude with which it can recover. Moreover, the recovery of the U.S. economy may not benefit the euro as it would imply an abrupt change in the direction of monetary policy in order to avoid the generation of a new speculative bubble and that inflationary pressures are excessive, rioja which would encourage the strengthening of the dollar.
In this negative context to what extent the euro may fall in the euro currency?
While the euro has lost value significantly from their peaks, many analysts believe that may still remain devalued against the U.S. currency. The more extreme the proposed article published in the Argentine site "Infobae" raised the possibility that the euro back to parity with the dollar. In this connection, the site reflected the statements of Argentine John Mauldin, president of Millennium Wave Advisors, for whom the collapse of Eastern Europe will have a devastating impact on European banking. According to Mauldin, "Europe is much more at risk than the United States to the lack of financial capacity of many countries to nationalize some banks, whose balance sheets outweigh their GDP."
Despite the poor prospects of the Euro, it is difficult that may break the barrier of U.S. $ 1.20. This act probably as a containment barrier for the European currency. And if the bankruptcy of U.S. $ 1.20 Euro? So it may be dangerously close to parity with the dollar. For these speculations are likely to materialize, the first half of this year will be crucial. Beyond this period, these possibilities will be diluted.
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