BBO Discussion Forums: The future of the Euro - BBO Discussion Forums

I suppose, in theory, if you normally have a portfolio that includes Euro denominated assets, you could sell off some of said assets and increase you holdings of dollars/yen/what have you. However, I don't know many investors who accomplish currency diversification via the denomination of their assets. (Currency funds are a much easier way to achieve the same end)

My current non-Euro investments are (by volume) about 1/7 via a turbo certificate on the currency (PLN)

The volatility of the PLN was pretty high in last months, are you not worried >>> your turbos can be knocked out before expiry day?

I'm vague on it, because the last time I looked at it was 30 years ago, but I seem to recall a "straddle" strategy in the commodities market that involved the spread between dollar futures and euro futures, where you would sell one short and buy the other, hoping to make a killing when the spread widened (or narrowed, I forget which) and you buy back the stuff you shorted and sell the other.

I am not totally clear on my exchange rate history, but for many years up until the 1970's many countries pegged their exchange rates to each other. This seemed to work ok for a large number of years, but perhaps this was because the trade imbalance was simply not so big.

Flexible exchange rates are often touted as a way to improve the competitive-ness of a country on the world market, but I have always been a little unclear on the details. On the one hand, a sinking exchange rates effectively lowers wages compared to your market outside your country, but on the other hand, any imported goods will rise in price compared to the average wage. So you can become better off only if most of what your country buys is made locally. It must be particularly bad for large importers of food, like the UK.

In Greece people will simply have to accept real wage decreases. This will have a negative affect on prices, and will have an equivalent effect to a weakening exchange rates. It is just politically and socially more difficult, as one cannot blame your government for the behaviour of the exchange rate. This will restore competitive-ness, and increase investment in their country. However, its unclear how one can bring this about, particularly given the large social security entitlements given to public sector workers in greece.

As a trained economist, I am an expert in these matters. Joining the Euro bloc is no different than pegging one's currency to another. Argentina has done this in the past with respect to the US dollar. The most recent effort eventually failed when when it became necessary to have a cheaper Argie currency.

When the Euro was formed in 2000 the head of Deutchebank is reputed to have said of the new currency (in German, of course): "I don't care what they call it, as long at it is the Dmark." And so, apparently, that's how it has been and still is.

If I were a European leader, I’d be very, very worried about this — and willing to take some serious risks, like the creation of E-bonds

I think he is referring to the suggestion from Luxembourg, that was rejected by Mrs. Merkel.

So Paul Krugman writes: Does he mean the following? €€€ New 5 Year Benchmark for European Union €€€
Issuer.................European Union (EU - Aaa/AAA/AAA) 0%rw
Size...................EUR benchmark
Maturity...............04 DEC 2015
Payment................T+5
Spread.................tbd
Leads..................BARC/BNPP/DB/HSBC
Timing.................Lauch & Price expected Wednesday 5th
The proceeds will be used under the EFSM EU Regulation, in
connection to the EU/IMF aid package to Ireland.[/code]

These would be issued by the single members of the €- zone (for financing the own budgets), but be quaranted by all Euro-states.

Heh. In 1787, or thereabouts, a committee of the Continental Congress was tasked to come up with modifications to the Articles of Confederation. One of the problems they were to address had to do with the debt the fledgling nation had assumed in order to fight the Revolution. One of the Articles said that the individual States would each assume a fair share of that debt. Most, if not all, when it came time to pay up, refused. Since there seemed to way for the national government to force the states to stick to their agreement (they were all signatories to the Articles, of course) the Congress hoped that this committee could find a solution. They did. They wrote the Constitution, dissolving the Confederation and establishing a strong Federal government, and giving that government the power to pay the debt.
It seems unlikely that a similar thing will happen to the EU, but who knows?