The euro falls back against major currencies as reality comes back to the markets

4 February 2013 4 February 2013

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The value of the euro has risen sharply in the last few weeks, boosted by regional data that suggests a return to growth and and end to hard times however the reality of what is happening in the Euro Zone and the shared currency remains very grim indeed.

Euro Crisis Not Over

“The euro crisis is not over” German Finance Minister Wolfgang Schaeuble said on 1st February at the Munich Security Conference where fellow panelists included Deutsche Bank co-Chief Executive Officer Anshu Jain. And Deutsche Bank should well agree with that statement as the bank, Europe’s biggest lender by assets, reported a 2012 Q4 loss on 31st January that exceeded estimates after it eliminated more than 1,400 jobs and set aside 1 billion euros for legal expenses.

The Pain in Spain

Just this weekend, riot police in Spain clashed with protesters who are angry at claims that the Spanish Prime Minister Rajoy and his party have been receiving secret payments from a fund set up by big businesses. With calls for the Mr Rajoy to resign, there are worries this latest scandal could destabilise markets which have recovered significantly in recent months.

Meanwhile, Spanish monthly jobs data out later is unlikely to calm the nervous markets with unemployment in Spain now standing at a staggering 26 percent with no signs of falling. Unemployment for Spain’s youth nudges ever closer to the 60 percent level.

Greek Bank Begging Bowl

Last week, Greece’s four biggest banks begun lobbying the bodies behind the country’s bailout in a bid to ease the conditions imposed on their recapitalisation and avoid full nationalisation. The National Bank of Greece, Eurobank, Alpha Bank and Piraeus Bank hold negative equity of about €8 billion. “New investors aren’t willing to pay for yesterday’s losses,” said Nikos Karamouzis, deputy chief executive at Eurobank.

If investors fail to appear, the banks risk being fully nationalised with the Greek HFSF, the Greek body that is administering the bailout money on behalf of the troika, taking control. That would mean once again the people end up paying for banks bad debts through their taxes.

France Falling off the Cliff

Meanwhile in France, the eurozone’s second largest economy is suffering more than any other Euro Zone member from a shocking deterioration in competitiveness. Put simply, France’s products cost far too much to produce compared with competing goods both from Asia and its European neighbours, including not just Germany but even Spain and Italy. That’s causing a sharp and accelerating fall in its exports, and a significant decline in manufacturing and the services that support it.

With a strong euro, France’s problems will only get worse. The world’s investors and the Euro Zone optimists need to wake up and see the reality of the situation that surrounds Europe. A strong euro currency will do nothing to help Euro Zone member states in the long run.