Thursday, 14 June 2012

Speculators attacking the Euro?

Most sensible observers - apart from the europhile 'Elite' behind the Brussels-Consensus - would agree that the way the Euro was constructed was - apart from being anti-democratic - deeply flawed from the onset. But we are where we are and cannot argue over spilt milk. That the governance of the Euro zone will have to be changed in a major way becomes clearer by the day.
But the discourse in the media - and above all in the blogosphere - is not really focusing at the relatively simple way the crisis can be ended. Too many commentators have a vested interest in seeing the demise of the Euro, be it for ideological reasons, be it out of a sense of 'Schadenfreude' or pure sensationalism (only bad news is news seems to be the motive, just read Zerohedge where is is difficult to find ANY constructive criticism). We do not even want to consider all those great thinkers that have positioned themselves for a collapse of the Euro or some of its member states and want to make hay out of any subsequent turmoil in the markets. Worst of all are 'investment' banks that play all sides - as speculators, doomsayers and 'advisors' to governments and banks that are victim of speculative attacks.
Because speculation is a key contributor to the growing crisis in the Euro zone. Not just in the guise of a hard-nosed hedge fund manager or prop trader but also in the shape of all major investment institutions. They may not be short-term oriented and probably have no axe to grind regarding the survival of the Euro but nevertheless they are knowingly or unknowingly contributing to the destabilisation of country after country by simply taking steps that are beneficial to their own self-interest.
Countries such as the USA and Britain have only survived with an intact (?) financial system because their Central Banks pumped money into the economy at rates that would have been called lunatic before the onset of the Credit Crisis. There is no such tool to stem bank runs on countries that are members of the Euro zone. Greece may have an economy that has been managed abysmally but no one in his right mind can expect a country to survive when speculation pushes interest rates to astronomical levels. A similar mechanism was at the heart of the credit crisis 2008-09 when speculation in relatively illiquid derivatives (mostly linked to ABS and MBS products) created a 'death spiral' in the credit markets that was largely divorced from the underlying reality in these markets.
Stopping the rot at the core of the Euro Crisis would require only the full commitment of the European Central Bank to an all-out effort to push interest rates in ALL member countries to acceptable levels and fulfil its role as lender of last resort to all banks that are threatened by a bank run.