Stock Markets
Falling to pieces. Image : Getty

Euro, what a carve up!

Beleaguered on several fronts, the euro is facing an unprecedented ordeal. The European press inveighs against what it terms a hostile concerted attack and calls on the EU 27 to react.

Published on 8 February 2010 at 18:10
Falling to pieces. Image : Getty

“Are the markets out to get the eurozone states?” The question Libération asks has been making the rounds of national chancelleries and European institutions since last Friday. That day, after the Madrid and Lisbon exchanges were hard hit, “The Parisian bourse dropped 3.40%, and Athens 3.73%,” recalls the French daily. “The euro dipped below the $1.36 mark for the first time in eight months. The fundamentals: the €30,000 billion in national debts amassed by the G7 countries and the situation in Greece, Spain and Portugal.”

“Amid mounting worries over the general state of public finances, speculators are testing the eurozone’s solidity by homing in on its weakest links,” explains La Tribune. “Didn’t US economist and market guru Nouriel Roubini recently raise the spectre of a possible ‘breakup of the monetary union’?” “By putting pressure on the euro and demanding a bonus for financing states that badly need a capital injection,” adds the business daily, speculators are “confronting the world’s second economic power in terms of GDP with its own weaknesses: the absence of a European government and the rigorous terms of the Maastricht Treaty, which rules out inter-governmental solidarity.”

A bank and two hedge funds

So the destabilisation of the euro appears to be sabotage, and Libération even names three culprits. “According to our information, which we have both from market watchdogs and financial establishments, a big American investment bank and two heavyweight hedge funds are spearheading the attacks on Greece, Portugal and Spain. Their object? To make as much money as possible by sowing a panic so they can charge Greece higher and higher interest rates, even whilst speculating on the market. Why can’t we name names? Because this intelligence is based on a string of assumptions that might be judged insufficient in court. And as one market operator warns, ‘You don’t mess with those guys’.”

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Libé” goes on to explain that “the two hedge funds holding the Greek market are incensed about having received only 2% of the last Greek loan and have decided to cause panic on the credit default swap (CDS) market. What’s behind this CDS? A sort of insurance taken out against the risk of default on the part of a state to which the buyer has lent money. A CDS has a price and is exchanged on an unregulated and utterly opaque market."

Anglo-American conspiracy theory

Down in Madrid, El País contends that “none of what is currently unfolding, including the prophecies of doom in some foreign papers, is a coincidence; rather, it serves special interests”. The fact that Spanish economy minister Elena Salgado is heading for London on 8 February to try to "convince” City investors and the media of the Spain’s economic solvency would seem to show – or at least situate – these “special interests”.

On its EU blog Charlemagne, however, The Economist refutes the theory of an “Anglo-Saxon conspiracy, or something approaching one”: viz. “a theory that rumours are being spread about the weakness of southern European economies for two reasons. First, because the British have always hated the euro (and the Americans feel threatened by it) and they yearn to see it crumble. Secondly, because the British and Americans are desperate to distract attention from their own crumbling finances.” After all, the English columnist points out, “even the most conservative and Eurosceptic newspapers, such as the Daily Mail, are not so much gleeful about trouble in the eurozone, as worried it will spread contagion to the British or American economies.”

The Isărescu method

For the time being, Libération advises, European governments and the European Central Bank ought to try to “calm down the markets by making them understand they are being victimised by speculators and run the risk of losing a lot by following the speculators’ lead […]. This is not the time to be reminded of the terms of the Maastricht Treaty, which rules out rescue operations for a eurozone member. If investors are guaranteed Greece won’t sink, calm will return.”

This is what the Romanian news site Hotnews.ro calls “the Isărescu method” after Romanian national bank director Mugur Isărescu. Last autumn, Hotnews recalls, "a Romanian bank promised its customers the national leu was bound to depreciate. Weeks passed and the leu failed to fulfil the punters’ desires. The customers ended up placing orders to sell, which caused the bank in question huge losses.” The Bank of Romania, which never confirmed those fears, actually turned a “small profit”. "The ECB ought to do the same thing.”

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