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The Euro, a foreign currency?

The Euro is, in principle, the common currency of the Europeans, however the crisis of sovereign has uncovered something completely unexpected and previously hidden. The Euro is, in fact, proving itself to be a foreign currency.

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Since the beginning of August, Spain and certainly Italy have struggled to issue bonds on the credit market. Spain is still struggling. Spain has confused speculation on the housing market with economic growth; but what about Italy?

Certainly Italy is highly indebted, with its public debt now at 120% of Gross Domestic Product. This is high.... But it is nothing new. That was the situation ten years before 2000! Since then, Italian public debt has not increased and at the beginning of 2009, when Keynesian stimuli were once again popular, Giulio Tremonti, the Italian Finance Minister, claimed that Italy could not afford a stimulus package as the Italian deficit ratio had not exceeded 5% of GDP. In France, the ratio is more than 7% in 2011, after having exceeded 9% in 2009, and in Great Britain, the budget deficit is steady at 10% of GDP. And even if Italy had played the part of the notorious grasshopper in the past, the Italians with a debt which is 37% of GDP are actually the ants. The British debt is at more than 130% and the Americans at 210% of GDP. However the British Government’s debt ratio is at 84% of GDP and the US Federal State is at 100% of GDP

Why are the British grasshoppers able to finance themselves more easily than Italy and even France? Why, on the 14 September did British Treasury 10 year "gilts" have a 2.45% interest rate, French Treasury Bonds 2.66% and Italian bonds 5.59%?

The answer is odious: Great Britain has its pound sterling, whilst France and Italy do not have "their" Euro.

The Bank of England has used "Quantitative Easing" to purchase Treasury bonds to the value of 200 billion pounds. British banks are assured of being granted all the credit they want from the Bank of England whilst they hold British treasury bonds as collateral.

This is not the case for France and Italy who cannot print Euros. They are dependent on the European Central Bank whose single mandate is to fight inflation and consequently to be stingy.

This is the reason why, in face of the markets, Italy has become a useless keel a defenceless prey. Tomorrow, if France wants to recapitalise its banks that ventured into the Americas, as investment banks, (in other words, speculators), short term financed on the credit markets or by "Money Market Funds", which, now that it is raining are "closing the umbrella, previously opened during good weather, where will France find Euros now?

Decidedly, the Euro is manifesting itself as a foreign currency and in the words of the traders and American bankers : "Life is not fair"

Norbert Silverbach , September 2011

Article also available in : English EN | français FR

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