December 5, 2003
WHAT GOES UP (via Tom Morin):
Brussels considers imposing currency controls (Ambrose Evans-Pritchard, 04/12/2003, Daily Telegraph)
The European Commission is examining the legal basis for 1970s-style exchange controls to stop the euro surging to destructive levels.A team working for Pedro Solbes, economics commissioner, claims Brussels may lawfully impose "quantitative restrictions" on capital inflows, clearing the way for a crisis response if the dollar continues to fall.
The document, drafted last month on the orders of Mr Solbes's director-general, Klaus Regling, concludes: "Should extremely disturbing capital movements endanger the operation of economic and monetary union, Article 59 EC provides for the possibility to adopt restrictive measures for a period not exceeding six months."
Any decision would be taken by EU finance ministers under qualified majority voting, leaving Britain with no veto.
The move came as the euro hit highs against the US dollar, touching 1.2125 yesterday before closing at 1.2109. It has gained 42pc in less than two years.
The euro-zone has borne the brunt of the global realignment. The Chinese yuan is pegged to the dollar, while Japan has capped the yen by buying US bonds.
Industry leaders in Germany and France say the euro has crossed the "pain threshold" and risks aborting the euro-zone's fragile recovery. The latest survey data shows a renewed fall in confidence among French consumers and German retailers.
Jean-Philippe Cotis, the OECD's chief economist, said further appreciation posed a "great danger" to the euro-zone.
What exactly did they think was going to happen when they kept the Euro artificially high against the dollar in order to prove a political point? Posted by Orrin Judd at December 5, 2003 6:31 PM
The consensus among steel suppliers is that, with the high valuation of the Euro, steel prices won't fall that much after the tarriffs.
Posted by: David Cohen at December 5, 2003 9:20 PMI travel to Europe 4 or 5 times a year on business and their economic leaders are clearly clueless. As the RMB becomes cheaper against the Euro, some industrial categories are quickly getting taken over by Chinese competition. In our product category (magnets and magnetic assemblies) there are around 200 trading companies pushing Chinese products all over Europe and the European manufacturers are buying, or are using the Chinese price to squeeze out domestic suppliers' margins. All the while the EU leaders are trumpeting their own significance while they bury their own. It's sad because they could respond, at least in part if their economies weren't so structurally stagnant. The Brits do seem to get it, at least to an extent and I'm sure that it drives the movement to avoid dumping the Pound for the Euro.
Posted by: Jeff at December 5, 2003 10:18 PMCurrency controls would be an especially creative way to sink the Euro as a reserve currency. If this idea gets any serious discussion, it will put to rest any pretense of economic competence in Brussels. Hard to see any further momentum for the Brits to dump the Pound now.
Posted by: Dave in LA at December 6, 2003 12:50 AM