This page has been archived and commenting is disabled.
Europe's Currency Manipulation
Authored by Stefan Kawalec, originally posted at Project Syndicate,
The Transatlantic Trade and Investment Partnership (TTIP), which the European Union and the United States currently are negotiating, would, studies say, boost welfare and reduce unemployment in both economies, as well as in other countries. At the same time, the TTIP could help to restore confidence in Europe and the transatlantic community. But there is one major barrier to realizing these benefits: the euro.
The problem stems from currency manipulation. Over the past three decades, the US has de facto tolerated currency manipulation by its major Asian trading partners, which built up large trade and current-account surpluses by suppressing the value of their currencies.
But the US is unlikely to accept such behavior within free-trade zones. Indeed, a bipartisan majority in the US Congress is already demanding that the Trans-Pacific Partnership (TPP) – a mega-regional free-trade deal involving 12 Pacific Rim countries – should include provisions barring currency manipulation.
Discussions about currency manipulation have long focused on China, which is not part of the TPP, but could join it, or a similar arrangement, in the future. But the economy with the biggest current-account surplus today is not China; it is the eurozone. In fact, at more than $300 billion, the eurozone’s current-account surplus for 2014 was about 50% larger than China’s.
The reason for this is simple: monetary expansion, which leads to currency depreciation, is the only macroeconomic tool available to the European Central Bank to boost the competitiveness of struggling economies like Greece, Spain, Italy, Portugal, and France. As a result, current-account deficits in the southern countries have diminished or disappeared, while surpluses in countries like Germany have increased, causing the eurozone’s overall surplus to swell.
An unsolvable problem for the ECB is that the euro remains too strong for the depressed southern countries and too weak for Germany. While allowing it to appreciate would help to reduce the current-account surplus, it would also exacerbate the economic distress in the depressed southern countries. This, in turn, would further strengthen the populist and anti-European political movements that have capitalized on social hardship to win support.
Some observers believe that the eurozone’s internal imbalances can be reduced if Germany increases infrastructure spending and allows wages to rise faster. But for many Germans, who withstood difficult social-security and labor-market reforms in 2003-2005, a deliberate effort to diminish hard-won competitiveness gains is not an option. The fact that 63% of German exports go to countries outside the eurozone – meaning that German companies must be able to compete with their counterparts all over the world, not just in the monetary union – makes the issue even more sensitive.
Other observers claim that further integration, especially progress toward fiscal and political union, would provide the eurozone with alternative instruments – namely, wealth transfers – to improve depressed countries’ competitiveness. But, as Italy and Germany have learned in their largely failed (and extremely expensive) efforts to stimulate uncompetitive regions, such expectations are unjustified. Indeed, despite spending huge amounts of taxpayer money – amounting annually to 16% of regional GDP in southern Italy and 25% of regional GDP in eastern Germany – the Italian and German economies have gained little.
Given that the eurozone probably would be unable to provide its non-competitive members with such large annual transfers, such a strategy would be even less likely to work there. Likewise, structural policies aimed at improving the competitiveness of underdeveloped regions of a single-currency area have repeatedly proven ineffective and expensive.
In short, the eurozone’s internal imbalances are likely to persist – and, with them, its undervalued currency and massive current-account surplus. To be sure, one might argue that as long as the ECB does not intervene directly by purchasing foreign-currency assets, the eurozone does not qualify as a currency manipulator. But given the purposeful nature of the ECB’s actions – not to mention the eurozone’s leading position in the global economy – this argument probably will not hold up for long.
At its core, currency manipulation is any intentional intervention that results in an undervalued currency and a substantial current-account surplus – exactly what the ECB is doing. If the ECB maintains this policy for an extended period, tension with the US is all but inevitable – tension that may obstruct the TTIP’s approval by the US Congress or hinder the treaty’s actual operation, resulting in its deterioration or termination.
This runs counter to the popular view, which drove the eurozone’s creation, that Europe needs a single currency to compete with large economies like the US, China, and India. In fact, if eurozone members kept (or restored) their national currencies, linked through adjustable currency bands, they could resolve their imbalances fairly easily, without generating such a large overall current-account surplus. Instead, they are at risk of sparking a currency war with major global economic actors – losing much-needed trading partners and allies in the process.
»
- 15683 reads
- Printer-friendly version
- Send to friend
- advertisements -
TTIP- "Iceberg, DEAD AHEAD!
All manipulation is subject to the whims of those with the most assets. For now: the derivatives holders.
Um, after all the QE in the US (And more coming) it seems hypocritical at best for The US to take issue with the first round of EUR QE?
As for TTIP, it would be ironical if, in yet another arrogant delusional tantrum, The Congress "In response" voted against TTIP, which is the best thing that could ever happen for Europe in the sense of the peoples of Europe. TTIP (Together with TPP) is right up there with FATCA as the most arrogant (And fascist in the case of the Former) piece of (Secretly-negotiated) legislation in Global history. Fortunately, there are Governments in Asia that are willing to tell the US to stick it where the sun don't shine so TPP is going nowhere. WIth TTIP, in theory, every State in The EU must vote unanimously (Including Greece, Hungary, Slovakia etc.) to approve, so it will be interested to see how the unelected Eurocrata in Brussels will find a way around that one!!
I hope you are right !
TTIP is an evil piece of legislation that allows corporations to sue governments for loss of earnings due to policies. Finally cementing corporate power above democratic power.
It's fucking horrid.
Who hears and rules the cases? That's the important question.
Who is even allowed to see the draft treaty and oversee the negotiations ?
Answer ==> Not you or I
A subsidiary of the World Bank Group, the arbitrators are all top flight lawyers with long ties to big multinational business.
Whoever gave DetectiveStern a red arrow needs to come on here and explain why they think TTIP is a good idea
Currency wars not going to end anytime soon, especially not with Central Banks involved.
Once currency valuations were removed from tangible precious metals and "Ctrl+P" used by central banks creating money from nothing with no backing whatsoever - it was all over.
Race to the bottom!
Which is, of course, why PM's are being manipulated together with every other "Market"...We can't allow the plebs an escape route now, can we? Better for the sheeple just to leave their fiat in the Bank at negative interest, followed by a nice Bail-in.
Maybe they can come up with a worse idea. But maybe not.
Arrest them. Get them out of the way so that people can evolve or do whatever people would do without banksters.
It's coming.
And it won't be nice.
-:)
EU = RVHP 2.0
Say it isn't so? The Sovereign bond market is dry, so the retreads (retards) are looking for liquidity from OIS> $usd , just as the FED. (Moe Howard) jawbone start's flapping.
FWIW, The RBA isn't going to drop rates on Monday. Glen Stevens know's what's happening to imports. He realizes, that 11 trillion in "funny money" has diluted market price discoverery.
Glen also knows China, is going to ease. The guy has financial prowess, and credentials to back it up.
I really hope Mr. Stevens makes the right decision, on Monday.
One bright day
In the middle of the night
Two dead boys got in a fight
Back to back
They faced each other
Drew their swords
And shot each other
A deaf policeman
Heard the noise
And came and killed
The two dead boys
If you don't think
This story true
Ask the blindman
He saw it, too!
Vote for me and I will only cut one leg off.
Vote for me and i will cut one arm off.
But fucking vote for one of us you must.
Like the fucking utter fucking banal bullshit spouted by the fucking cunts arguing about religious freedom laws.
The only fucking example they can fucking come up with is about fucking flowers and fucking cakes for faggots
For fucks sake, these people are so fucking moronic it makes you want to puke.
And the fucking dumb fuck sheep get all involved in this shit and take it fucking seriously.
I don't know whether to laugh or cry.
Fuck all of them, and fuck the sheeple,
I decide who my friends are, not some fucking committee, and I can tell you that these are not in my list of friends, Muslims, nor any rabid fucking deluded superstitious asswipe that talks about their fucking delusions in my company. Fucking Arabs, No fucking sub Saharan or anyone that comes form any part of the world where fucking IQ'a are sub 80. I am not going to waste my fucking time trying to figure out which of them is smarter than the average goat they herd. and that's just the start. I am very very discriminating when I choose my friends.
And it applies just as much to staff and who I hire. If I'm going to be working with you every day, I want that we should be friends,
And if they are not fit to become friends of mine then they are not to be trusted so they can fuck off too.
And I don't fucking car if you have he best fucking resume in the world, nepotism (meaning knowing and trusting, whether friend or family) will always take precedence.
And that applies to who I do business with too.
You don't like my policy on who I choose to be friends with hire or do business with, then fuck off and find some other cunt to do your business with.
This TTP and TTIP is the same sort of fucking shit.
They can all fuck off, because no matter what these cock sucking leeching parasites decide, I will NOT play their fucking game.
This is about the fucking elite raping you and has the rights to fuck you first.
And that applies no matter which way it goes. It is only a power struggle between cunts who see your ripe juicy ass and give not a fucking damn about whose ass it is, only who plunders it first.
learn to be tolerant, you fucking chinese fuck 2nd gen import.
your grand parents are sick in the tomb reading you.
you are spiting in the soup you been raised in. show some more respect and try to be subtle, instead of showing tooths like enraged dog, all you do is putting oil on fire.
flaming people never fixed anything. the only soluction is education, it takes constant time at 1,5 gen ( 30 years ) to make something change and go stable, unfortunatly technology is much faster that education.
the people like you cannot be changed, you are part of the problem.
No, its fucking moronic cunts like you that go and vote for faggot Kenyan fucking shit stabbing monkeys to install in the fucking Whitehouse,
Its cunts like you that that get pisse2d on day after day and lick it up.
Its cunts like you so fucking ignorant of reality and so fucking lazy you can't get off your fucking fat arse to find out what is going on.
Education, For fucks sake, you are so dumb you can't even see that there is no education, It is all propaganda
Good to know there's someone out there crazier than me. Yeah, being self-employed is kinda shitty just now's damicol. Know this: Your folks want a steady paycheck, they have no concept of how said paycheck is derived.
On the other hand, how many of us have ever said "the only reason I would hire you is if you could make me money"?
In between, there's a lot of gray area.. I'll just say this- don't be a dick, damicol.
Any article that states: "... the US has de facto tolerated currency manipulation by its major Asian trading partners..."...
should probably be immediately junhked.
Stefan Kawalec is CEO of Capital Strategy and previously served as Poland’s Vice-Minister of Finance.
The current situation with massive current account surpluses (in Germany) and an undervalued EURO is inherently unstable since the centrifugal forces resulting from the southern periphery members becoming continously poorer and more indebted will tear the EU apart. Kawalec's assumption is therefore nonsense. Unfortunately! Unfortunately! Were he right, keeping the EURO low would be suitable instrument to keep the disastrous TTIP away from Europe.
ZH, keep the broken euro symbols coming.
There continued and inconsequential use renders them meaningless.