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Re: EURO



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Timothy,

> If hans or any of the other European-based traders are
> reading, maybe they can give us all a view from 'inside' the
> new marriage zone.

The new currency doesn't solve anything per se. You are right that 
one still has to differentiate between the different countries and 
their instruments. Currently risk analysts are in high demand in 
Europe.  Basically the credit risk question comes more into focus 
since currency and interest rate risks are gone - this is especially 
true for corporate bonds of minor countries. But bunds or 
whatever will still be bunds even if they are nominated in another 
currency.

The main problem will be that member countries cannot trade 
themselves out of trouble by devaluating their currency. So the 
question is: What will be the valve ? We will propably see fights in 
the Europaen Union institutions over the redistribution of income. 

Weak countries will argue that they need additional EU funds since 
they have no other escape route. The fight for funds will propably 
start anyway without any crisis scenario when new weak countries like
Poland challenge traditionally weak countries like Portugal for EU
funds. 

I think that penalties for countries who run too high deficits - as 
was decided before Socialists took over Europe - will never been 
enforced and are not enforceable anyway. We see already numerous 
instances were the Europaen Commission is unable to enforce laws and 
directives in member countries. 

These factors can weaken the Euro since credit expansion of some
countries may happen. At the moment everyone is behaving well. But 
once they are "in" they might try to exploit the system because the 
incentive is gone (entry into Euro).

The interesting part will be how the Europaen Central bank will 
challenge expansionary policy by member countries. 

The only way how the majority could keep rogue countries under 
control will be to threaten their expulsion from euro zone. This 
however will be a major defeat. So don't delete your currency 
histories from your harddisk yet.

> The countries
> aren't giving up their own leadership, their own currencies
> or bonds--

They do give up their currency in three years time. In the transition 
period there will be a fixed exchange rate and old notes will 
circulate. The currencies are practically gone as of 1.1.99.

BTW: I received some indication from Omega that they are working on 
the Euro conversion problem.

Gerrit Jacobsen


> I'd say watch the local bonds and currencies as well as the
> new Euro whatever and currency. It will not be as simple as
> taking the DM and tacking its history onto the new Euro
> currency, nor will it be as simple as taking the new Euro
> bonds and tacking the Bund history on. The most stable
> economy has always been the Dutch, but the best thing to do
> is watch these new instruments alongside their predecessors. 
>
> I think you can look at this thing as people did when the
> EMS finally was up and running: There will be rock solid
> currencies an bonds--Germany and the Dutch and there will be
> constantly struggling partners--The Belgians, the French and
> the Brits. The normal tone for the pack of currencies [and
> soon the Euro], as well as bonds, will be called around the
> movement of the strongest and most constant economy. They
> used to say the EMS was a dirty float or better, some small
> fish swimming around the whale [so the weak and volatile
> economies moving around mainly the Dutch]. That did not mean
> that Dutch bonds or currency was the proxy for the rest;
> simply, it was the anchor and things could only move so far
> in any direction before a reckoning came. 
> 
> We'll all have to watch just how tight these countries
> really become as the marriage is consummated. The countries
> aren't giving up their own leadership, their own currencies
> or bonds--they are accepting being linked together with a
> convertible currency and bond. So it will force them each to
> try to stay in step [or risk falling down] with the Euro.
> The proof will be if they can stay in step with the unified
> ideals and still have a local economy that is healthy.
> 
> I'd say watch the local bonds and currencies as well as the
> new Euro whatever and currency. It will not be as simple as
> taking the DM and tacking its history onto the new Euro
> currency, nor will it be as simple as taking the new Euro
> bonds and tacking the Bund history on. The most stable
> economy has always been the Dutch, but the best thing to do
> is watch these new instruments alongside their predecessors. 
> 
> If hans or any of the other European-based traders are
> reading, maybe they can give us all a view from 'inside' the
> new marriage zone.
> 
> Best,
> 
> Tim Morge
> 
> 






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