The Euro

[Arturo Bassick]

Considering the Euro is in tulip street why is it gaining against the Pound on the exchange rate?

Exchange Rates Graph (British Pound, Euro) - 120 days - x-rates

Any of you financial gurus explain?

[DodgyAgent]

Considering the Euro is in tulip street why is it gaining against the Pound on the exchange rate?

Exchange Rates Graph (British Pound, Euro) - 120 days - x-rates

Any of you financial gurus explain?

I am sure DP will be along just as soon as he has fed the pigs

[KimberleyChris]

Because the pound is winning the race to the bottom.

Change the chart to EU v. USD for the broader view :-)

[Freamon]

Considering the Euro is in tulip street why is it gaining against the Pound on the exchange rate?

Exchange Rates Graph (British Pound, Euro) - 120 days - x-rates

Any of you financial gurus explain?

Because the UK is back in recession?

[scooterscot]

Considering the Euro is in tulip

Why?

Remember by comparison to the £ not a single euro extra has been printed.

Most trade in the EU is continues to be in € (much to the UK's disappointment)

Furthermore, as you assume, this is not a currency problem but a debt problem by mismanaged governments. If the car has ran out of petrol you don't abandon the it for another (unless you live in London of course)

'Euro is not to blame for crisis'


One of the world's most successful investors, Jim Rogers, has told the BBC that the euro is not at the root of the current problems in European economies.

Mr Rogers said the euro was good for the world and needed to work, but the main issue was excessive debt.

He told BBC World Service Business Editor, Martin Webber, that the situation in both the United States and Europe is serious and getting worse.

Full transcript below

Jim Rogers: Martin, it's very serious. America is the largest debtor nation in the history of the world and it's getting bigger and bigger by leaps and bounds at the rate of over $1 trillion a year. And in Europe you have several bankrupt countries and no one is dealing with the problem. If you look at the projections for all the European countries, none of them have reduced debt a year or two or three from now. So, this situation is serious and getting worse.

Martin Webber: Thinking back to the mid-1990s, capitalism seemed ascendant, western capitalism had triumphed over communism, economies were growing, stock markets were growing. Who do you blame for the fact that we have ended up in this mess?

Jim Rogers: Well, essentially it's governments and central banks; especially in the US they just kept spending money and the central bank just kept printing money. But there are several culprits.

Martin Webber: Who else apart from these authorities?

Jim Rogers: The government of United Kingdom, the central bank in the United Kingdom, the governments in places like Greece which used phoney bookkeeping, but also even Italy and France and Germany. They all started using phoney bookkeeping. They knew that the other countries were using phoney bookkeeping and they all said, oh it's okay, everything will be okay in the end.

So, the central banks and the governments were going hand-in-hand and spending money they did not have. Now, that's wonderful. It's great. It can cause huge growth. As you just pointed out, for 15 years you had great growth. But eventually, somebody has to come up with and pay for it, or eventually you just run out of other people's money.

Martin Webber: What seems to be going on at the moment is that central banks are creating money, lending it to banks, who are then lending it to governments in terms of buying their bonds because the private investors are no longer doing that. So you have got government owned institutions effectively buying government bonds. People don't seem to really understand what on earth can be going on?

Jim Rogers: It is a recipe for disaster. I am glad you pointed it out because there is nothing more authoritative than the BBC. It's a Ponzi scheme, it's a fraud, it's a sham and we are all going to have to - we are already starting to pay for it, Martin. It's going to be much, much worse in the end.

This is nuts. Any idea yet why the £ is sinking against the € in the long term?

Eventually one of two things has to happen. We have to get together now and ring-fence the problem and figure out how we are going to survive and start over. Or, in a year or two or three, the market is going to say, no more money, we won't put up any more money. And then the whole system collapses, then you have gigantic chaos, social unrest, governments failing, civil war - huge mess.

Martin Webber: Let's try the more optimistic scenario. You say it is possible still to get a grip on this problem, what are the measures that need to be taken right now then to avoid the other scenario of civil war?

Jim Rogers: Well, at the moment some governments have credibility, Germany for instance still has credibility. And if they all got into a room together and Mrs. Merkel said, okay, you guys are going to fail, you have failed, and now you are going to fail. We are going to hold these banks, these companies up. We are going to make sure they survive. We are going to make sure bank deposits are okay. We are going to make sure checks continue to clear and the system will survive. Some of you are going to take huge losses and huge pain, but then we start over.

It would be a terrible two- or three-year period, Martin, but then the system could survive and we could rebuild after the people who have made mistakes take the losses. That's what capitalism is supposed to be all about. If you fail, you fail.

Martin Webber: And what are the mistakes then? Is it that the people who bought government bonds of France, Italy and all the other countries are going to have to take losses?

Jim Rogers: Absolutely. The banks who made these loans, and the bondholders who bought these loans, and the stockholders who own stock in these banks. They were making mistakes. They are all going to have to take huge losses. Now you are going to say, that's very painful, that's bad.

Well, I will remind you Martin that in the early '90s, Scandinavia had the same problem. They did exactly this. They ring-fenced everybody, many people failed, there was horrible pain, but after three or four years Scandinavia has been one of the great growth areas of the past 15 years or so. That's the way the system is supposed to work.

In Japan in the early '90s, they said nobody will fail. Well you know they have lost two decades in Japan. You know about zombie banks. You know about zombie companies. The Japanese way doesn't work. It is not going to work in America or Europe.

Martin Webber: So we got a situation there where people invested in banks lose money, presumably people with pensions who have investments in these banks lose money, and government bonds lose money too. But the politicians have a much nicer sounding solution it seems, which they have just come up with, which is that the European Central Bank creates money, lends it to the IMF and the IMF then lends it back to them. Sounds much nicer, doesn't it?

Jim Rogers: It sounds wonderful, doesn't it? But it is not based on reality. It's based on "Never Never Land." It's based on the "tooth fairy." Somebody has got to come up with real money somewhere along the line and payoff real debts somewhere along the line.

Martin Webber: But isn't that possible, that if you are the government, you can create as much money as you want because it's your money?

Jim Rogers: You certainly can. You can debase currency, and history is replete with governments that have debased their own currency and ruined their own currency for hundreds of - well for thousands of years it has been going on.

Still wearing a vacant expression or is it becoming clear why the £ is sinking against the €?

You can do that and everything is okay for a while, but eventually you have inflation, you have high interest rates, you have currency turmoil, you have people no longer trusting each other to invest with each other, and then you have the end of the system, and we have chaos, and it starts over again.

Martin Webber: Is that not the more likely scenario in that the politicians never like to tackle problems. They are always interested in the next day's headlines. Isn't it more likely they will find yet another ruse to put off the day of reckoning?

Jim Rogers: Absolutely. You are a very insightful observer of the passing scene. That's exactly what they are going to do. If a politician ran on the platform, oh my gosh, we have got to take a lot of pain. Even if he won, Martin, which is very unlikely, but even if that politician won, after six months or a year or two of serious pain, he will be either thrown out or assassinated or something would happen because people would say this is too much pain. We didn't know you meant it was going to be this bad. Let's get out of this.

Martin Webber: Now many people say it's the euro that's at the heart of this crisis. They are calling it the "euro crisis." Is that how you see it?

Jim Rogers: No, absolutely not. It's not the euro. The world needs the euro or something like it to compete with the US dollar. We need another sound currency. The eurozone as a whole is not a big debtor nation. The eurozone has some debtor problems, some debtor nations, debtor states, but it's not a big, big problem. The euro is good for the world. It needs to work.

Jim Rogers: Well, I do have sympathy with the fact that they are saying, we shouldn't have bailed out the banks. I would have let all those banks go bankrupt, as you've heard me say before. But beyond that I don't have too much sympathy with them. You know, we all want a free lunch. I would like somebody to pay my bills too. I would like somebody to take care of me the rest of my life too.

Listen it's outrageous that the government took the money and saved the banks. Absolutely, they are right about that. It's outrageous, totally outrageous that governments went and bailed out some banker so they could keep their Lamborghinis and their summerhouses. But beyond that, I don't have too much sympathy with them.

Martin, whenever there are hard times, people look for somebody to blame. And they always blame the financial people, they always blame foreigners, and they always blame reporters. They always say, well if the reporters didn't write about this problem, we wouldn't have a problem. So be careful. Financial types get blamed first, the foreigners get blamed second, you are next.

Martin Webber: Okay. I am prepared.

[DodgyAgent]

"The world needs the euro or something like it to compete with the US dollar. We need another sound currency"

That is the best he can do come up with a cliche. The Euro is enabling countries to hide their sovereign debt. If Greece were in the drachma the Drachma would have collapsed and put a stop to any money printing and an end to the debt cycle. The Greeks would have gone bust forced to clear out the waste (public sector) and start again. The Euro is preventing this from happening because too many people think "The world needs the euro or something like it to compete with the US dollar", without considering the practicalities of how the Euro should work. In the meantime the med countries continue to run up debt because they can.

The problem with people is that they become polarised- pooperscoop classic example- on a point of view of for or against something, as if not wanting to lose an argument. In this case the guy Rogers is partly right in that it is not the Euro per se that is to blame but it is the fact that sovereign currencies and banks are being allowed to continue their ways whilst being "protected" by this monolithic currency. Without the Euro these countries would not be allowed to get away with running up huge debts. The UK has more than £trillion of debt and the reason Sterling is struggling is because these debts are exposed and we cannot hide behind the non debt countries of Northern Europe- and that is the way things should be.

[Freamon]

"The world needs the euro or something like it to compete with the US dollar. We need another sound currency"

That is the best he can do come up with a cliche. The Euro is enabling countries to hide their sovereign debt. If Greece were in the drachma the Drachma would have collapsed and put a stop to any money printing or the debt cycle. The Greeks would have gone bust forced to clear out the waste (public sector) and start again.

No, the point is that if Greece still had the Drachma they wouldn't have gone bust, because the strength of their currency and the cost of borrowing would have been able to gradually adjust to the right level to suit their economy. In the euro they were able to borrow too cheaply and their exports became far too expensive, which sealed their fate years and years before they actually racked up their debts.

[DodgyAgent]

No, the point is that if Greece still had the Drachma they wouldn't have gone bust, because the strength of their currency and the cost of borrowing would have been able to gradually adjust to the right level to suit their economy. In the euro they were able to borrow too cheaply and their exports became far too expensive, which sealed their fate years and years before they actually racked up their debts.

Fair comment, but being the Greeks they would have gone bust anyway

[Freamon]

Fair comment, but being the Greeks they would have gone bust anyway

Perhaps, but even then, they would have been able to default on their debts as and when it was the right thing to do. Under the euro they are basically being prevented from defaulting, which has just consolidated all their small problems into one giant catastrophe. Before they joined the euro they defaulted on a fairly regular basis every few years, but their cost of borrowing reflected the risk of this...

[DimPrawn]

Because of the effects of 15 years of Labour ruin. Compared to that, Europe is in great shape.

HTH BIDI