"It is about survival"

Dear Reader,

This week I will cover an article that concerns the EU.

The European Commission, the European Central Bank and the IMF are in a discussion with the Irish and Portuguese governments to resolve the EU’s financial turmoil.

Ministers from the 16 Euro-Countries are gathered to meet and discuss the situation this Wednesday.

The aim is to question Portugal and Ireland of how they are planning to get out of their current debt crisis, which is the reason for uncertainties on the bond market.

(Source: esharp)

The EU is in the brink of another Greece-style bailout….

(Source: FAZ)

…the European Unions President Van Rompuy is very troubled

Based on his speech in the Parliament in Brussels he sees the Union in a serious “survival crisis”.

He highlighted the increasing splits in the zone, with Ireland resisting to accept aid and other countries in debt like Spain and Portugal are publicly pushing Dublin to get to an agreement soon to calm down the markets.

On the other hand other countries, also including northern members who have been more responsible in terms of financials, are increasingly frustrated about the pressure from the ECB of being placed on Ireland.

However one of the representatives of the parliament underlines that Ireland does not necessarily requires financial aid, because of the difficult budgetary situation they are in.

Dick Roche responsible for European Affairs agrees and stresses that – “After the ECOFIN-Meeting everything will be seen more logically”.

He adds that: “There is no reason to accept aid from the IMF or the EU, there is definitely no problem with the banks liquidity”.  

In my opinion it is important that all members work together now, to get through the current turmoil. The Unions future could get in serious risk. As also Van Rompuy states:  “We all have to work together to survive, with the eurozone, because if we don’t survive with the eurozone, we will not survive with the European Union.”

We will see the results of the ECOFIN Meeting next week.

Sources:

1. FAZ

http://www.faz.net/s/Rub0E9EEF84AC1E4A389A8DC6C23161FE44/Doc~EC07F41345CB243EF89BD9F5D0341ACD2~ATpl~Ecommon~Scontent.html

2. EU Observer


http://euobserver.com/9/31281

PS.

I found some additional Information about my contribution to Mr. Zoellicks announcement:

World Bank President Robert Zoellick speaks at the Development Committee news conference during the annual IMF-World Bank meetings in Washington October 9, 2010

For more info please refer to the link below

http://news.yahoo.com/nphotos/World-Bank-President-Robert-Zoellick-speaks-Development-Committee-news-conference/photo//101108/ids_photos_ts/r1186710520.jpg//s:/nm/us_gold_zoellick

And I did some research about the results from the EU summit:

It took a long time. The debates at the EU summit were hard. But after eight hours of white smoke rose and cleared the way for an unprecedented restructuring of the monetary union. Chancellor Angela Merkel and President Nicolas Sarkozy were able to prevail themselves - partly.

For more info please refer to the link below

http://www.spiegel.de/international/europe/0,1518,726103,00.html

E.V.

Bretton Woods II

Dear Reader,

One of the most discussed topics in recent weeks is the high uncertainty in the worlds currency market, also titled as the currency wars.

The world economy is showing clear signs of global imbalances in world trade, caused by the financial crisis. Since financial institutions are getting back on their feet, the focus shifted to even more serious problems – countries increasing public debts.

The President of the World Bank, Robert Zoellick raised his voice last week and made a plausible suggestion concerning the debate, he argued: “Leading economies should consider readopting a modified global gold standard to guide currency movements.”

(Source: FT)

To be more precise, his idea proposes to involve the dollar, the euro, the yen, the pound and a renmibi that moves towards internationalisation (adopts to the market conditions) and then an open capital account.

According to Zoellick, this system should also consider “employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”

A successor is needed, and he calls it “Bretton Woods II”.


I found an interesting video, where Zoellick explains his plans explicitly (please refer to http://www.youtube.com/watch?v=okJdmy5TSRo)

The key players in this discussion are the U.S, China and the EU. The U.S. is accusing China of holding down their domestic currency to maintain the dominance in exports. Additionally it blames other countries for contributing to global account imbalances and creating capital market distortions. On the other hand Germany’s finance minister criticises the US Federal Reserve’s decision to pump another 600 billion dollar into the financial markets. He argued that: “It is not consistent when the Americans accuse the Chinese of exchange rate manipulation and then steer the dollar exchange rate artificially lower with the help of their central bank’s sprinting press.”

World Bank President Zoelicks view underlines the importance of the debate and suggests a change in the system, which could replace the failed 1970 Bretton Woods agreement on fixed exchange rates.

I agree with Mr. Zoellicks suggestion introducing a new system or reform the old one.  The extent of changes in the market since 1971 are immense, therefore I think it is eligible to consider changes in the Bretton Woods arrangement. Although Gold is considered as “old money” from many economists, markets are mainly using it as an alternative monetary asset nowadays.

(Source: GoldPrice.org)

Additionally the gold price hit a record high of 1389 Dollars the ounce, mainly influenced by the move of the Federal Reserve ($600bn). Another criticism to the US could be the decision making in isolation. This kind of decisions should normally be done in extreme cases and in consultation with other states.

On Thursday the G-20 Summit will be held in South Korea, where the subject of currencies will be covered. 

E.V.

Sources:

1. NY Times

http://www.nytimes.com/2010/03/15/business/global/15yuan.html

2. FT

http://www.ft.com/cms/s/0/eda8f512-eaae-11df-b28d-00144feab49a.html

3. FAZ

http://www.faz.net/s/Rub0E9EEF84AC1E4A389A8DC6C23161FE44/Doc~E4033511125C7438CB3714019F2246802~ATpl~Ecommon~Sspezial.html

4. FAZ

http://www.faz.net/s/Rub0E9EEF84AC1E4A389A8DC6C23161FE44/Doc~ECDDF0BE161E446A5BC9163DC2460056D~ATpl~Ecommon~Scontent.html