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 Milestone

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

Booking.com commits to align practices presenting offers and prices with EU law following EU action

4 crazy things that are happening in the Arctic right now

How storytelling can be a force for social change

Retirees will outlive their savings by a decade

Commission reinforces tools to ensure Europe’s interests in international trade

Hostilities in Syria’s southwest, mean cuts in vital aid across Jordanian border: Senior UN official

Why informal networks will be key to the COVID-19 recovery

The Commission offers exit from the EU budget stalemate

COP21 Breaking News_04 December: Building a Sustainable Future – speech by UNEP Deputy Executive Director Ibrahim Thiaw at the LPAA Thematic Event on Buildings

UN experts decry torture of Rakhine men and boys held incommunicado by Myanmar’s military

Why cybersecurity matters more than ever during the coronavirus pandemic

Employment and Social Developments in Europe review: why social fairness and solidarity are more important than ever

Why our future relies on more inclusive and transparent innovation

Armenia should take vigorous measures against entrenched corruption

Climate action ‘both a priority and a driver of the decade’: Guterres

Politics is failing to protect the Amazon. It’s time for finance to step up instead

MWC 2016 LIVE: Getty chief says one in four new images from phones

Statement by Frans Timmermans, Executive Vice-President for the European Green Deal, on the announcement to postpone the COP26

This entrepreneur built an island resort out of plastic waste

EU Top Jobs summit ended with no agreement: welcome to Europe’s quicksand!

Reopening schools too early could spread COVID-19 even faster – especially in the developing world

EU foreign investment screening mechanism becomes fully operational

Climate change and health: Raising awareness is the key for greener actions

Draghi’s top new year resolution: Quantitative Easing

Several crises in one: what effects will COVID-19 have on the global risk landscape?

EU Summit/Migration: Parliament calls for joint solutions based on solidarity

The widely advertised hazards of the EU not that ominous; the sting is financial woes

These 4 skills can make the world better after COVID-19

What do the economic woes of Turkey, Argentina and Indonesia have in common?

We probably should go back to the therapy in Primary Healthcare

How UN cultural treasures helped set the stage for Game of Thrones

“ASEM: Global Partners for Global Challenges”, a Sting Exclusive by China’s Ambassador to the EU

Africa cannot afford to lose doctors to COVID-19

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

Monday’s Daily Brief: Independent UN experts on Myanmar, UN chief renounces attacks in US, Libyan airport violence, UN spokesperson on Kashmir, and FAO and Italy on development

What does ‘excess deaths’ mean – and can it give a clearer picture of the number of coronavirus fatalities?

If on a summer’s night: is UK businesses’ “new deal” the only key to the “best of all worlds”?

4 key steps towards a circular economy

Increased levels of carbon dioxide could reduce brainpower, study finds

Tsipras bewildered with Berlin’s humiliating demands; ECB expects political sign to refinance the Greek banks

How has technology changed – and changed us – in the past 20 years?

Mergers: Commission approves acquisition of Bayer’s animal health division by Elanco, subject to conditions

Companies can help solve water scarcity. Here’s how

US pardons for accused war criminals, contrary to international law: UN rights office

There is no recipe for a healthy mental state

UN condemns ‘cowardly’ attack on Libya’s national oil corporation headquarters

Civil protection: Parliament strengthens EU disaster response capability

Taking fast road to ‘e-mobility’ central to a sustainable future: COP24

‘Stop and listen’ to victims of terrorism, UN chief urges in message marking international day

Brussels enraged with Swiss referendum result to keep out EU citizens

Malaysia has achieved high levels of growth, but must do more to address governance and social challenges

PM May fosters chauvinism, declares trade war on Europe

UN Human Rights chief urges Venezuela to halt grave rights violations

COVID-19: Budget MEPs call for quick progress on post-2020 contingency plan

Hungary: Commission takes next step in the infringement procedure for non-provision of food in transit zones

DR Congo: ‘No time to lose’ says newly appointed UN Ebola response coordinator

Who cares about the unity of Ukraine?

Algorithms are being used to convict criminals and decide jail time. We need to make sure they are fair

EU to negotiate an FTA with Japan

More Stings?

Advertising

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