Failure of the single currency in Europe

Posted: Dec 08, 2011 |Comments: 0 |

I am 62, not an economist or a politician thank god, but I am a businessman and have worked for the past 45 years in four different careers. From a cartographer in the public sector for the first 4 years, then as a parts manager in a garage for 3 years, then as a salesman to managing director for an automotive aftermarket specialist that I helped build into the market leader in a 20 year career, latterly I have worked for 18 years as an independent trainer and management consultant.

I consider myself reasonably intelligent, but more street wise than academically so. I write a bit but read a lot more. I might not be as qualified as some to comment on the situation in Europe at the moment, but think there are one or two points that those eurocrats in all their blind ambitions have missed.

The point I am coming to is that in joining all 17 of the EU's euro zone countries together under one set currency doesn't allow for adjustments to be made for successful verses unsuccessful economies.

Take the example of Greece verses Germany, one has the most successful economy in Europe the other country has one of the worst performing economy's.  I am not going to cover the reasons why as that is not my remit here. In the good old days the drachma would have been devalued several times now and when compared to the deutschmark, which in the same time would have been revalued in the opposite direction. There would be several drachmas to the deutschmark.

Under the present system one Euro in Greece is the same value as one Euro in Germany, how can that be right? It might have been ok for a few months even possible to cover the discrepancies up for a few years as they did. But most (not all) of the problems with the Euro in Europe today is just this point. There is no working mechanism for adjustments to be made.

The EU has 27 different countries whose economies are working at different rates with different results. The Euro zone has 17 and either it all has to become one country (which is the Eurocrats secret agenda) or there should be a two or better a three tier system to allow for these differences to take place.

Johnny Herbert

Retrieved from "http://www.articlesbase.com/economics-articles/failure-of-the-single-currency-in-europe-5467041.html" John Herbert - About the Author:

John specialises in Sales Skills, Major Account and Sales Leadership training and is the author of TURN the Sales Questioning Technique. After twenty years selling at all levels in industry, and since 1993 John has run his own training business and developed, written and delivered many training programmes, to thousands of delegates covering a multitude of markets but mainly in sales, from blue chip clients such as Securicor Omega Express, Heidelberg UK, Parker Hannifin Plc. and Omron Electronics to SME's such as Jenrick Plc. Camberley Auto Factors, Lloyds tsb, Peapod UK. Cobalt Telephone Technologies and Ondemand Recovery.

Questions and Answers Ask our experts your Economics related questions here... Ask 200 Characters left How many countries use the euro currency? If econnomy eurozone need to recover why kep euro strong against usd and make dificukt to export and industry in general? If we keep euro at 1,15 or 1,25 to USD economy in Europe would export and revi I am iranian living in europe like to visit dead sea in jordan can you please tell me if any of iranian travel agent in europe have such a tour.....belgium germany holland or france merci Rate this Article 1 2 3 4 5 vote(s) 0 vote(s) Feedback RSS Print Email Re-Publish Source:  http://www.articlesbase.com/economics-articles/failure-of-the-single-currency-in-europe-5467041.html Article Tags: euro, currency, europe, economy, two tier europe, germany, greece, eurocrats, single currency Latest Economics Articles More from John Herbert Progressivism Isn't Progress, VIII

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Factors That Effect Currency Values

ByAbey Francis

To date, there is no exchange rate model that can predict future currency prices with 100% accuracy. In rapidly growing global foreign exchange markets, currency movements become harder to predict as more participants enter the market on a daily basis, bringing with them all their research opinions, emotions, and expectations about where currencies should be headed. Currency movements in the short term can be influenced by publicly available information like the release of the country's gross domestic product data, the consumer price index, or employment data. The following publicly available information can have immediate impact on currency movements:

• Local economic data releases and the anticipation of those releases.

• Economic data releases in foreign countries, especially of major trading partners, and the anticipation of those releases.

• Central banks, such as the U.S. Federal Reserve or the European Central Bank, raising or lowering interest rates.

• Central banks making public their thoughts on monetary policy.

• Expectation of central banks making public their views on local interest rates or monetary policy.

• Political developments, both globally and in individual countries.

• Natural disasters and perceptions about how they will impact economies.

• Changes in commodity prices, particularly oil and gold.

This list is not exhaustive, but these factors would be among the more important catalysts for currency movements.

But there is also information that is not immediately publicly available, such as individual traders' in-house strategic analyses on currencies or buy and sell orders that come from customers, which can affect the decision process of market participants. The activities of market participants such as central banks, commercial banks, hedge funds, individual investors, and multinational corporations will be influenced by a mixture of all these factors.

Central banks around the world such as the U.S. Federal Reserve, carry out actions called "monetary policy" to influence the availability and cost of money and credit. The do this to achieve certain national economic goals such as lowering inflation or promoting growth. In 1913 the passage of the U.S. Federal Reserve Act gave the monetary policy power to the Federal Reserve. There are three tools of monetary policy that the Federal Reserve or "Fed" uses:

(1) open market operations,
(2) the discount rate and
(3) reserve requirements.

While the FED's board of Governors makes decisions regarding the discount rate and reserve requirements, the Federal open market committee (FOMC) is responsible for so called open market operations. By using those tools the Fed is able to influence the balances that banks and other depository institutions hold at Federal Reserve banks and are thus able to alter the federal funds rate which is the interest rate which banks lend to each other overnight. A change in the federal funds rate influences a whole host of financial and economic events such as other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and such economic variables such as employment, production output, and prices of various goods and services. The 12 members on the FOMC; including various officials of the Federal Reserve System, hold eight annual meetings where they determine monetary policy after they have reviewed economic and financial conditions and any risks to price stability. The Federal Reserve's commentary shown above illustrates how such variables as natural disasters, energy prices, political uncertainties and interest rate changes can influence currencies

Currency strategists will look at such factors to forecast price targets for currencies. For example, if a strategist was tasked to predict the expected performance of the Canadian dollar against the U.S. dollar through 2007, he would probably factor in the expected performance of the U.S. dollar over the previous period, as well as expectations of commodity prices that Canada exports such as oil, the direction of interest rates in Canada, and the corresponding rate environment in the U.S. The strategist is also likely to look at expectations of capital and trade flows associated with the Canadian economy, and how Canada's political landscape is likely to evolve over the period. Thus, in forecasting the expected performance of the "loonie," the strategist essentially conducts a fundamental analysis of a country underlying economic conditions. To get a feel for these fundamental analyses, here are some common scenarios that can have an impact on currencies:

• If a country's stock market rallies, its currency could strengthen. A stock market rally provides an ideal investment opportunity for individuals regardless of geographic location. As a result, there is a positive correlation between a country's equity market and its currency. If the stock market is rising, funds will rush in to seize the opportunity. Alternatively, falling stock markets will see investors selling their shares to seek opportunities elsewhere. The correlation between stocks and currencies is strong enough to make currency trader's watch stock market for cues on performance of currencies.

• If oil prices surge to record highs, it can have a negative impact on some currencies. A country's dependence on oil is very important in determining how its currency will be hit by a spike in oil prices. There will be a greater negative impact on countries that are net oil importers. For example the U S is among the world's largest net oil importers and thus its economy will be more sensitive to changes in oil prices than many other countries. Countries with alternative fuel sources, and other resources, have the ability to switch from strict oil dependence to other energy sources, which helps to reduce their exposure and sensitivity.

• An increase in a country's unemployment numbers can have a negative impact on its currency. Currency prices reflect the balance of supply and demand for those currencies. A primary factor affecting supply and demand is the overall strength of the economy. The unemployment rate is a strong indicator of a country's economic strength and therefore a contributor to the underlying shifts in supply and demand for that currency. When unemployment is high, the economy may be weak-and its currency may fall in value.

• If a country's central bank makes a surprise decision to raise rates by more than expected, its currency could rally. Currency traders look at data related to interest rates very closely as interest rate differential are strong indicators of relative currency movements. If a country raises its interest rates, its currency can strengthen in relation to those of other countries because high interest rates help nations attract foreign investment. Economic indicators that have the biggest impact on interest rates are the producer price index, consumer price index, and GDP. Generally, the timing of an interest rate decision is known in advance. They take place after regularly scheduled meetings by the Federal Reserve, ECB, RBI, and other central banks.

Abey Francis, a full time blogger engaged in the areas of management and technology. Author and Moderator of famous business management blog Management Articles and Business Case Studies

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Abey Francis

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