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Business / Finance

Euroscepticism: why the European currency is in distress in 2020

Banki.ru: monitoring of the banking press 13.02.2020 at 06:20

Banking and financial news on the website Banki.ru

The Euro in recent weeks, rapidly falling, down to the lowest level since the beginning of October. Only hundredths of a cent is not enough the European currency to update the record of the last three years. The collapse of the Euro is not on any one occasion, and under the influence of a range of reasons. It predicts the monetary unit of the EU challenging the future and is extremely unlikely to push the dollar among the major reserve currencies.

In January, the Euro dropped by 1.1%, having the worst start of the year for the last five years. In February, the Euro continued to ease, dropping by noon February 12 to $1,0904. It was even worse in 2015, but then the world experienced a mini-crisis due to falling prices in the oil market. Recent support for the dollar and dropped most other currencies. The current decline looks less dramatic, but, apparently, will be deeper and more fundamental.

it is Interesting that this year, by contrast, promised to be good for the Euro, according to Bloomberg. First, a trade war between the US and China came if not the world is eternal, then at least a long pause. Second, Brexit finally held and in the relations between the EU and the UK came certainty. But not everything turned out as expected, Euro-optimists.

the Main newsmaker for the world's stock exchanges at the beginning of the year was the epidemic of the coronavirus. It has already led to decrease in quotations of oil and other commodity resources and has secured the suspension of production at many factories in China, where almost a third of the global industry. The problem spread to other countries in East Asia and affects Europe. In addition to the supply disruptions in China and reduced demand for many goods and services, most of which comes from EU countries. Not surprisingly, all this affects the Euro negatively.

the Virus has not yet reached the peak but his influence on the Chinese economy is already estimated at 0.5% of GDP. Apparently, the acute phase of the epidemic will last at least the whole first quarter, so the damage will be even two or three times more. The EU is the largest exporter of goods in China, the economy of the Union crisis in Eastern power will be affected the most.

However, in addition to China, the Europeans and so headache enough. Published on 12 February, statistics showed that at the end of December (i.e. before the start of the epidemic), industrial production in the Eurozone fell by 2.1%, which is the worst figure for the last four years. This greatly affected the data on the broad economy — GDP grew just 0.3% year on year, and as new statistics data can be further revised to the downside.

besides the reduction of production affects the rate of the Euro directly, the deterioration of the economic situation might encourage the European Central Bank to lower rates and take other measures to mitigate the monetary policy. C well-known consequences in the form of a new weakening of the currency Union.

don't forget the political factor. The problem of controlled British exit from the EU could be overcome, but then the situation deteriorated at the front of the struggle against populism. In Germany a political maneuver right populist party "Alternative for Germany", at the last moment to support in the elections in Thuringia, representative of the Free Democratic party, has led to an acute political crisis, which resulted in the successor Angela Merkel Annegret Kramp-of Karrenbauer ceased to be such. Not only that, the local operation "Successor" has been put under threat, so also for the repeated regional elections the radical right and left parties can gain more votes. The political mainstream in the largest country in the EU will weaken further, which threatens the strong political and economic turbulence.

In Ireland, in the last election won by the radical party "Sinn FEIN", known for its ties to the Irish Republican army. The party, which acts quite aggressively populist stance, forgave her cooperation with terrorist organizations is too much the Irish boiling from modern centrism, which provided a good GDP growth and high places in international rankings, but did not give a significant improvement in living standards for most citizens. The position of the populists continue to rise in Italy, Spain and Sweden and in some other countries, the ruling party succeed only by listening to a radical agenda. All of this can provide serious consequences for the current political consensus in the future, and hence in the sphere of economic management.

Finally, another factor threatening the stability of the Euro is relatively weak technological development of the Internet industry in Europe. Among the largest IT companies in the world many American and Chinese, a little less than firms from other East Asian countries, there is even a little Russian, but European, almost none. Meanwhile, it is the flagship high-tech industry now attract the lion's share of capital to the us stock market, further strengthening the dollar against the Euro and other currencies. How much would the Europeans tried to coordinate policy on creation of own IT-the Champions, it turns out they are not very good. Which is rather strange considering that the technical education in Europe had problems in the last 200 years was not.

For the European economy, the depreciation of the Euro may not be such a large problem. Weak Euro boosts local producers, whose products become more competitive in both the global and domestic markets. This applies to any industry — from precision engineering to tourism. At the same time it undermines the purchasing power of wide layers of the population, who are already not too happy with the current economic policy, when most of the rather modest GDP growth goes into the pockets of the top few percent of the population.

do Not forget the factor of trump: the US President could blame the Europeans in the artificial undervaluation — even though no evidence of such manipulation to be detected is not obtained, the Euro fell solely on natural causes. The result of this conflict may be another round of currency or trade war, which for the benefit of anyone not going.

The main conclusion of the recent on the currency market situation is that the Euro does not work place as a full-fledged rival to the dollar as the world reserve currency. He's too unstable and prone to weakening with every sign of investor uncertainty in the Eurozone and the EU. And the reason for such uncertainty 2020 gives in abundance. If Brussels will not be able to implement their long-planned reforms (there is no reason to believe that they even just start), with the dream of a reliable and strong Euro will have to finally say goodbye.

Dmitry MIGUNOV