Why the euro may rise with the dollar even at lower interest rates

José Manuel Barroso, President of the European Commission, received Aníbal Cavaco Silva, President of Portugal. Discussions focused on the economic situation in Portugal and in Europe, and the progress achieved by the Economic Adjustment Programme. Aníbal Cavaco Silva thanked the President for his efforts in supporting Portugal in its endeavours to overcome the economic crisis. (EC Audiovisual Services, 13/06/2013).

José Manuel Barroso, President of the European Commission, received Aníbal Cavaco Silva, President of Portugal. Discussions focused on the economic situation in Portugal and in Europe, and the progress achieved by the Economic Adjustment Programme. Aníbal Cavaco Silva thanked the President for his efforts in supporting Portugal in its endeavours to overcome the economic crisis. (EC Audiovisual Services, 13/06/2013).

Goldman Sachs, the US financial giant, may be right in predicting more expensive euro parities with the American dollar around 1.37 within six months, largely higher than the current levels of 1.28-1.30.  The European Sting has been pointing for a long time to Eurozone’s foreign account surpluses and the standard inflows of investments into the euro area, which constitute a solid base for the single European money in relation to the dollar and the rest of major currencies of the world. Let’s follow the political and financial issues that determine the foreign value of the euro.

Portugal

Eurozone countries have demonstrated a strong built-in ability to overcome their internal political crisis as the recent developments in Greece and Portugal proved, after Italy has shown it can always come up with viable political solutions. Yesterday Pedro Passos Coelho, Prime minister of Portugal, announced that  Paulo Portas, leader of the conservative CDS party, a junior partner in the government coalition, is to become vice premier. Portas quitted as minister of Foreign affairs last week, thus threatening the Parliamentary base of the government and giving the shivers all around Eurozone. Now he returns to the government as part of an agreement with Coelho’s Social Democrats, to keep alive the governing coalition and avoid early elections.

Actually Portas will undertake the responsibility of bargaining with the country’s official creditors/auditors. Portugal like Greece and Ireland apply severe austerity programmes drafted by the troika of creditors/auditors formed by the European Commission, the European Central Bank and the International Monetary Fund. Portugal is more or less successful in controlling its deficits and public debts but at a great social and economic cost. Unemployment and GDP losses have hit the ceiling but the overall status of the country’s economy is not as discouraging as in Greece. Actually financial market analysts expected Lisbon to return to debt markets early next year.

With Portas in the negotiation table the troika will find it very difficult to deny some relaxation of austerity measures. Portas quitted his position as Foreign Minister, when the Coelho appointed a new minister of Finance known for supporting pro-austerity policies. Now Portas will sidestep the minister of Finance and deal himself with the troika. However, Eurozone’s beleaguered governments even at moments of internal crisis seem to look towards Brussels for advice.

Brussels advice

Last Wednesday, at the peak of the Portuguese crisis, the President of the European Commission Manuel Barroso, an ex-Prime Minister of Portugal himself, issued a strong statement on his country’s political situation saying that: “The initial reaction of the markets shows the obvious risk that the financial credibility recently built up by Portugal could be jeopardized by the current political instability. If this happens it would be especially damaging for the Portuguese people, particularly as there were already preliminary signs of economic recovery. This delicate situation requires a great sense of responsibility from all political forces and leaders. The political situation should be clarified as soon as possible. We trust that Portuguese democracy will deliver a solution ensuring that the sacrifices the Portuguese people have made until now will not have been in vain”.

In short Barroso told his fellow Portuguese politicians that they didn’t have much time to resolve the dead-end they created themselves, because the financial markets are becoming restless about Portugal. It’s noticeable that the political solution found in Lisbon had to be announced before markets open this Monday morning.

Greece

Political developments in Greece followed a similar pattern recently. The left DHMAR party, young partner in the Athens tri-partite government left the coalition two weeks ago. Soon however Prime Minister Antonis Samaras, leader of the centre right New Democracy party, managed to come on top of the situation and quickly reshuffled his government. He gave more powers to the second government coalition party, the socialist PASOK under its leader Evagelos Venizelos, an old fox of the Greek political scenery during the last twenty years. Samaras also managed to attract to New Democracy two independent deputies, thus strengthening his Parliamentary majority. Now Athens is about to strike an agreement with the same troika of creditors/auditors; apparently meant to relax a bit the traumatic austerity policies followed in Greece for four years now.

The ECB

Last but not least, the European Central Bank’s Governing Council in a historic unanimous decision announced last week that it “will keep its interest rates at their current or lower levels for as long as it is needed”. Now the basic rate of ECB is already at record low levels with 0.5%. This ECB announcement is tantamount of the central bank’s taking part in the effort to revive Eurozone’s economy. The target is to support the business sector and the governments with a bonanza of cheap loans.

The fact that the decision was unanimous means that Germany is gradually playing down its austerity policies and accepts the social realities in the south part of the single money zone. In this way there is every indication that Eurozone will follow from now on growth enhancing policies. This is why Goldman Sachs’s prediction may come true despite the fact that ECB says it may reduce its interest rate at levels very close to zero.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

UN investigates systematic sexual violence across South Sudan

European Youth Forum welcomes strong stance on human rights in State of the Union

European Commission recommends common EU approach to the security of 5G networks

From beer to blenders – 5 creative ways people are being persuaded to get their COVID-19 vaccination

Estonia built one of the world’s most advanced digital societies. During COVID-19, that became a lifeline

“Health and environment first of all”, EU says with forced optimism after 7th round of TTIP talks

Why collaboration is key to global reforestation efforts

Draghi tells the EU Parliament his relaxed policies are here to stay

US-EU trade negotiations: pointless tariffs against real economic growth

Much more than a ‘lifeline’ for millions of households, remittances can spur global growth, says UN agency

Can ECB’s €60 billion a month save Eurozone?

5 futuristic ways to fight cyber attacks

GSMA Outlines New Developments For MWC19 Shanghai

Statement by the Brexit Steering Group on UK government White paper

This wall of shoes is for the women killed by domestic violence

Parliament toughens its position on banking union

EU leaders prepare timetable and structure for EU budget negotiations

There is huge talent in the world’s refugee camps. We must realize this overlooked potential

Royal Navy to unveil future surveillance and reconnaissance requirements next February in Rome

Understanding the challenges surrounding COVID-19 vaccine campaign

UN film festival encourages young people to promote peace, dialogue and empathy

EU/African, Caribbean and Pacific partnership: MEPs list key aims for renewal

5 ways the world is rallying around Australia as bushfires rage

This is how good governance can make sure technology works for everyone

European Youth Event 2020: giving a voice to young people to influence EU policy

4 reasons why women should lead the G7 agenda in 2018

Mixed news about the Eurozone economy

World faces ‘climate apartheid’ risk, 120 more million in poverty: UN expert

How technology can help us achieve universal healthcare

Yes, ESG is complicated. Together, we can simplify it

If this is Globalization 4.0, what were the other three?

This Norwegian cruise line plans to power its ships with rotting fish

The 3 traps when it comes to blockchain and business – and how to avoid them

Handwashing is not just for coronavirus – how good hygiene could help reduce antibiotic use

Sanity in times of COVID-19

“Move fast, build to last: Europe’s new generation” – op-ed by Ursula von der Leyen, President of the European Commission

Statement by Commissioner for Crisis Management Janez Lenarčič on the explosion in Beirut, Lebanon

Commission takes further action to ensure professionals can fully benefit from the Single Market

The rise of techno-nationalism – and the paradox at its core

Winter 2019 Economic Forecast: growth moderates amid global uncertainties

LUX Audience Award 2021 goes to Collective

China has made a shocking food production discovery – electro culture

How to make trade single windows more efficient with blockchain

Can privatisation be the panacea for the lack of growth in Europe?

Commission disburses €14 billion under SURE to nine Member States

This 3D-printed steak could help us reduce meat consumption

We generate 125,000 jumbo jets worth of e-waste every year. Here’s how we can tackle the problem

The UK’s River Thames has come back to life – with a seal population to prove it

New skills agenda for Europe needs real investment

Releasing trapped value is key to success in the digital world

This is why mental health should be a political priority

3 leaders on creating a pipeline for female talent in business

Can big events really go plastic-free? A water capsule made from seaweed may be the answer

How can we make enough vaccine for 2 billion people?

Impact of high debt levels on least developed countries ‘cannot be overstated’, says UN

State aid: Commission approves €650 million Polish support to LOT in context of coronavirus outbreak

State aid: Commission expands Temporary Framework to further support micro, small and start-up companies and incentivise private investments

Basel III rules relaxed: Banks got it all but become more prone to crisis

World’s 1.8 billion youth must ‘have a say in the future of the planet’

Yemen war: UN chief urges good faith as ‘milestone’ talks get underway in Sweden

More Stings?

Comments

  1. Nice article. Thank you for it.

    Trader’s Torch

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s