Are the Euro's days numbered?

Friday, June 26, 2009

So yesterday, the European Central Bank announced that they will be injecting a record 400 Billion Euros (that’s 613 Million USD) into the banking sector to spur lending by the devastated European Banks.

The financial meltdown started in the US with the investment banks taking advantage of lax laws governing certain assets. They grouped bad investments together and sold them as a unit of potentially high yielding securities – without properly disclosing the risks involved.

Now, many US banks purchased these assets and suffered, however the US government intervened and guaranteed these “toxic assets”, which enabled the US economy to begin the path to recovery.

The EU is different, they resisted helping the banks that made poor judgment choices by buying these assets, fueled by greed and the need for stellar returns. In fact, they were so exposed to these assets, that three of the largest banks in the Euro zone had more than 40% of their risk capital invested in these products.

The European Unions failing was that they did not rush to help. Many, including myself, believe that the US went too far with their assistance – some banks needed to fail as “failure breeds success” is the motto of the capitalist society. But, the government did do the right thing by unblocking the path to lending.

The Europeans, in all their hatred of anything American, took the total opposite approach. The Socialist societies which pride themselves on being there for those in need, became ultra-conservative and hardened their hearts towards the banks who made stupid decisions.

So we come to Wednesday, June 24th and the ECB is at the point of no return. Signs of life are flickering in the US, while the Euro Zone is at a standstill, falling deeper into a hole. So what does the Central bank do? The worst thing possible for the struggling Euro – they inject so much money into the system to break the non-lending cycle, that the traders panic and Forex Online bloggers come up with doomsday conspiracy theories about this was the last resort.

The European Union will be fine, but we are seeing that their monetary agreement, resulting in the Euro, might not survive. The problem is there is a large gap between rich states and poor states in the Euro Zone – and it is nearly impossible to please everyone all the time.

But, and this is a biggie, by doing what they did yesterday – by helping out when the big Western European Banks were in the most need, they sent a clear message to the Eastern Europena countries, whose banks have been suffering for nearly eight months with no reprieve, that they are not as important as the wealthier West.

So what impact will this have on the Euro? It got hammered yesterday and is in for a rough ride today. Please do not think for one minute here that I am now a USD fan, I am not by a long shot – but I will admit that the prospects for the Dollar, with all the issues hovering above its head right now, are much greater than those of the Euro.


Anonymous June 26, 2009 at 5:16 PM  

ah hah hah ha. 400bil e =/= 637mil us.

Not to mention you've gotta be a retard to be doing forex in the first place. Go ahead and try to compete manually against funds that use automated currency hedges.

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