Why the euro is still stronger than sterling

After a lot of background, turns out the answer to Euro relative strength vs GBP (YEN, USD) is : interest rates.......doh !

John, as you have pointed out, "on more than one occasion recently, there has been a big buyer of European debt in the background, scooping up enough to keep prices ‘stable’." to suggest that the euro can retain it's strength against sterling long term or that the euro could become a reserve currency is to say the least 'clutching at straws'. With China already now the world's largest exporter and second largest economy the Chinese renminbi is more likely to emerge as the world's reserve currency.

"Greece, Ireland and Portugal would have defaulted and with nothing to stem the tide, we may have seen the majority of Europe bankrupt"

This is not true and is where your argument does not hold. These economies were slower growing and higher interest rate economies. Growing at their own rate by the nature of their indusry and people. If this had remained so the growth up to today would have been slower but also more stable, with the opportunity to devalue the local currency if necessary. Their debt would also have been lower.

Indeed it is the European Union and single currency that has caused the mess, allowing these countries sudden access to masses of cheap debt to suddenly grow at rates unheard of before. The problem is that there was no "backbone" to this grow leaving these economies up the creek without a paddle relying on the fellow members to bail them out. Great. Until the next time and the next time after that!!!

The main flaw in your argument is that if the euro had not existed then the markets would not have allowed the PIIGS countries to get into the state that they are.

I have commented before that the Euro is inherently faulty as there is no longer devaluation of local currencies available to the weaker economies. In the end either a Euro States with a single national government will be created or the Euro will fail. The cost to Germany of seeing such a state created would be disasterous to their economy.

The ECB was originally set up to operate on strict anti-inflationary German principles, or the Germans would never have agree to trade in the deutschmark for the euro. Arguably, Germany is engaged in a rearguard action to ensure that this remains the case, and maybe the currency market still accords this a degree of belief. More simplistically, the dollar remains in low odour, and the euro represents the next most liquid alternative for very large participants in the currency markets.

Richard J Davis says it all !

So why is the wonderful Euro possibly set to fail? The old mantra applies: "one size doesn't fit all" and the wider the range of countries in the zone, the more it applies.

If only we had kept to what I thought I was voting for those long years ago: a truly Common Market. I don't suppose I was the only one not to read the small print in the Treaty of Rome.

Only a fool (fools) invest in countries/businesses that are not performing and have little ability/resources to do so.

Great play has been made of the manufacturing capabilities of different countries which in turn reflects on the capacity of the countries to raise taxes from the manufacturers.

Apart from the banks, which have had to be bailed out, the problem is really the debts created not by industry but by govts which make nothing, nor do they provided a service which adds to the economies.

Rather the govts are a drain on the businesses of the countries and it is they who have sold bonds which the ECB is now buying even though there is little chance of payback soon. The more benefits constituent govts give out or employ unproductive staff,

Part of the problem is that it allows politicians to ever increase/maintain social programs requiring massive financial inputs for little or no revenue producing result, but more likely to be an almost permanent massive money requirement, taking in massive numbers of people who require support, housing etc.

When they (and the locals) are dissatisfied with what they are getting they will riot and destroy some the businesses of those who do pay their way to get more, requiring the use of more resources to 'remedy'.

Is not part of the solution that govts must cut back on these programs and their unproductive civil servants and get their budgets into surplus and keep a tight lid on the handouts?

There seems to be a complete head in the sand attitude regarding the effect of our military spending on the national debt and consequently on our economy.

The governor of the Bank of England does not mention it when trying to explain the inflation figures. If Germany had spent as much as we have on trashing Iraq, Afganistan and Libya as we have they would have similar debts to ours and similar numbers of grieving families. The Taliban are winning by destroying our economy and the fabric of society. The UK and the USA are in danger of falling because of our involvement in foreign wars. Sic transit gloria mundi, ask what is left of the USSR, they found out the hard way what we have yet to learn.

We have an economy going nowhere as the government is trying to control spending by cutting public spending and at the other end the B.O.E is printing money by not raising interest rates The answer is now stagnation and inflation

(stagflation) how stupid is this?

A number of scenarios are possible:

The Euro stays as is and muddles along.

There are two Euros - North and South.

Ther is one Euro (North) and Lira, Drachma etc return.

The Euro fails completely and we return to the national currencies pre-Euro.

Given the large amount of Euros held by China and its level of trading with the EU what is the situation/consequences for those who have invested in China for each possibility?

David

Is John Freeme a pseudonym for Jacques Delors?

I do not like the idea of putting my money in the euro but where is the best place to be? Is it still the Swissie and the Yen? How about Singapore dollar or Norwegian Kroner? Better still is probably gold with some in silver as a speculation.

Eurobonds can be done with or without a central political function to oversee, but Merkel has said no several ocassions now.

Germany stagnated for many years whilst under the surface the Esat Germany was being digested. From that expereince, they probably have enough data to conclude that absorbing the rest of euroland is not possible, there aren't enough euros in Germany. France is running alongside, but frankly she has nothing to give at all as she is all debt herself.

Yet if Germany doesn't do something, the markets will.

It's a bit of a cliffhanger this one.