ECB Enters Currency Wars Backward As Weidmann Talks Euro... Up?
Update: Just as predicted, and right on schedule a few hours after this hit the tape, here come the French: EURO GROUP MUST WATCH RISING EURO'S IMPACT ON GROWTH: MOSCOVICI
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The jawboning continues - but this time it's different. During a speech this morning, the ECB's Weidmann made it clear that the optics of EUR strength are critical to the union's survival (and Germany's balance of power vs the French):
- *WEIDMANN SAYS ECB CANNOT SOLVE CRISIS, GOVERNMENTS MUST
- *WEIDMANN: DEVALUATION HISTORICALLY DOESN'T HELP COMPETITIVENESS
- *WEIDMANN: IF MANY NATIONS DEPRESS FX, CAN ONLY END IN FAILURE
- *ECB'S WEIDMANN SAYS EURO ISN'T SERIOUSLY OVERVALUED
- *WEIDMANN WARNS POLICY MAKERS AGAINST TRYING TO WEAKEN THE EURO
Of course, as we head towards the G-20, everyone wants to talk their book - but in this case, Weidmann is talking the EUR up. As we have been saying, Weidmann is scared of what happens when the EUR downward slide accelerates and implicitly results in a blow up of peripheral yields leading to even faster EUR collapse, and ultimately fears of EUR redenomination. This has been the case every year and always led to the ECB having to step in and prop the EUR up - just the opposite of what every other central bank does.
Also, while Weidmann is agitating against inter-FX warfare, what he is doing, is encouraging intra-FX battles, namely between France and Germany, because while a stronger EUR hurts Germany, it hurts France much more. Recall last week's repeateds pleading by both Hollande and the French Finance minister Moscovici that the EUR is too high. Why? Because as we showed yesterday, the only winner in the European mercantilist block, is Germany.
Expect either Draghi, or Hollande, or both to come forth promptly and say that no, Weidmann is incorrect, and the Euro is quite overvalued, irrelevant if it is "seriously" or not.
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