The recent spike in the Rupee
and the nonchalant behavior of Indians and specially the incumbent government
and the RBI sent me thinking about the other currencies which would have gone
the same way down…
In general, the last year has seen the dollar rise in comparison to almost all the currencies.
This presents us with two simple alternatives:
1. The US economy is on a recovery path with a faster growth than 3-5%, which given the size of US is impossible.
2. The Global economies are losing investor confidence in all economies and are looking at securing the most stable and strongest currency in wake of an economic aftermath, the US $.
Since the first option is out of question. Let’s look at the second one.
Trying to look each of these currencies will take me down the path of yet another enormous article. So let me look at them in a regional bloc manner and categorically reach to the smaller ones, starting with the Euro, Ruble, and then Rupee.
Euro will have to be looked as a variable directly proportional to European Union (EU). Currently, EU is mired with problems starting from fiscal to ideological to diplomatic perspectives. The tensions of 2012 summer of Euro disintegration has been recently brought to fore by the Dutch finance minister. What brings us to the brink of such a situation ?
The decision drivers which are gunning for the disintegration are multifarious. The reasons and the triggers for the Euro weakening have many theories to be earmarked with. It all started around the 2008 financial turmoil with the fall of Lehman Brothers and since then the EU and euro has been in crisis. The crisis exposed each of the member countries financial stability and thus weaker countries were left to fend for themselves. The stronger member economies such as Germany, France, UK were scared to bail out the weaker economies as they risked being dragged down financially. This brought down the level of confidence in the union.
The EU could never unify all its member states and bind them to a common agenda of fiscal and monetary prudence. The member countries are always scattered and differentiated with the union policies. This never aided the EU to come to terms hindering their diplomatic and economic trade stance with other regional blocks.
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The euro member countries have been also been dealing with a lot of internal political instability. Italy’s democracy has been challenged by Beppe Grillo “Movimento 5 stelle” and its wave of populism. His “La Repubblica” advertisement in 2005 called for the resignation of the then Italian Bank governor over the banking scandal. Later, he rocked the Italian political scenario with his “Operation Clean Parliament”. His “vaffanculo” rally was attended by 2 million Italians in 2007. Greek has seen its own share from Alexis Tsipras of SYRIZA, revolting against the austerity agenda. Viktor Orban’s landslide win in recent Hungarian elections bring a more pragmatic thought to the way the populism is molding the societal core. France’s National Front and Hungary’s Jobbik present perspectives which should not be overlooked by EU.
What may come out of these movements could be either good or bad for the Euro/ Europe/ the member countries in that matter. That's something which time shall scribe.
I am right now being unbiased and trying to list what could affect the European Union (Euro).
The EU has two options:
i. They should let loose some of the weaker laggards, lose its initial agenda of European unification and continue as a closed stronger and focused.
ii. Nibble on time and hope that the EU members come together under a covenant and do away with all the fiscal and economic ideological disparities in the region.
While EU looks at the first option, it risks losing its character and essence. The choice is fraught with the making more enemies and seclusion of trade with the smaller and weaker economies and inviting distrust and enmity with the neighbors.
The second option is more to do with buying time and sticking together hoping that one day all the nuts and bolts (members) of the EU region start functioning in a more coherent manner… One day…
To be continued in the next blog with the core performance reasons for the Euro fall …
