The euro continued to break new records this week as it rose further against a weaker dollar. The euro reached a new high of $1.3667 on Thursday, and continued to remain high.
Expectations in the markets are that the USD will be devalued further in an attempt to lessen the impact of the US trade deficit. However, the central banks may be given a role at the G7 summit to help strengthen the USD.
Major european political figures have been voicing concerns about the strength of the euro, especially in the face of its strength against the USD.
German Chancellor Gerhard Schroeder wrote in a newspaper article that stability in foreign exchange markets required a correction of global economic imbalances.
Italian Prime Minister Silvio Berlusconi has also voiced concerns about the strength of the euro, stating that the current strength was “absolutely worrying” for Italian exports.
France’s finance minister, Herve Gaymard, has also commented that the strength of the euro against a devalued dollar would have to be a significant topic of discussion at February’s G7 meeting.
The export-driven European economies are worried about continuing devaluation of the USD and it’s impact on the euro for their exports.
Although share prices across Asia have continued record rises, despite the weekend’s Indian Ocean quake disaster, fears of economic growth being dented in already recovering economies has left the Yen at a new low against the Euro.
The yen dropped to 141.60 against the euro, before rallying at 140.55 by the end of trading. Traders warn that the traditionally quieter Christmas trading period means that small movements can appear otherwise larger, and the Yen is expected to recover more ground over January.
The Euro continues to rise in value against the USD, but the European Central Bank ( ECB ) is not expected to act to devalue the European currency.
According to the report, Dollar continues record fall against Euro:
The US Dollar reached new lows against the Euro, reaching $1.364 by 6pm last night. The USD has now fallen 7% against the Euro this year, and lost 3.2% against the Yen.
Continuing worries about the US trade and budget deficits has led to a new record low in the value of the USD against the Euro.
The Euro reached $1.3516 a the New York Stock Exchange (NYSE), before rallying to $1.3509.
The new low for the dollar was blamed on fears that a fall in the US housing market could hamper consumer spending, and economic growth forecasts with it.
Euronext, a pan-European company, has begun talks aimed at setting up a formal bid for the London Stock Exchange (LSE), a private company that runs the actual London stock exchange.
The London Stock Exchange itself is Europe’s biggest, and lists stocks with a total capitalisation of around £1.4 trillion (€2.2 trillion).
Euronext already owns stock exchanges for Paris, Lisbon, and Amsterdam, as well as Liffe in London, and according to the International Federation of Stock Exchanges, is the world’s fifth-largest exchange in terms of the total capitalisation of its quoted companies. The LSE is fourth, after the New York Stock Exchange (NYSE), NASDAQ, and then Tokyo.
A bidding war is now expected to develop, as rival firm Deutsche Boerse seeks to re-evaluate its previously rejected offer of £1.3 billion, which follows a failed merger attempt in 2000.
Investors are suggested to be much more likely to favour a Euronext bid because of possible savings from the bringing together of these resources.
Euronext chief executive Jean-Francois Theodore is reported to have already held private talks with LSE’s chief executive Clara Furse.
However, talks are preliminary, and no offer has yet been made for the LSE, which is currently enjoying a peaked share price of 533p per share.
More analysis is provided in the BBC report: Market merger would boost Euronext.
The European Union agreed - as expected - to begin formal talks on the introduction of Turkey to the EU, as from October 2005.
Significant political strings were attached, however - namely, that Turkey must recognise Cyprus before talks begin.
While smaller European countries, such as Netherlands, welcomed the move, politicians in France and Germany are looking nervously at how a Muslim country joining the EU might be viewed by their own populations.
The current head of the European Commission, Jose Manuel Barroso, stated, “Today is also a new beginning for Europe and for Turkey… This is not the end of the process. This is the beginning.”
However, Jaques Chirac of France stressed that it could be 15 years before Turkey is able to join, and that “entry cannot be guaranteed.”
To add to the pressure, France and Austria have both stated their intention to hold a referendum on the issue.
Turkey has been shocasing the strength of its own ecomony, in preparation for key European Entry talks on December 17th - at a time when a Germany is persuading the European Commission that stringent economic rules it once advocated, cannot be sustained by a flagging German economy.
Turkish finance ministers have insisted that they are running a country whose economy is ever becoming stronger and healthier. In media reports, they point to:
The country’s State Planning Organisation suggests that Turkey could deliver 6 billion Euro’s per year by 2014. And with a constant gross domestic output (GDP) is expected to stay around 6%, this would leave Turkey contributing around 9 billion Euros to the European Union by 2020.
The Euopean Union’s own impact assessment pretty much agrees that in the long run, Turkish entry will benefit the EC. However, vast initial costs are expected at first, ranging anywhere between 16-34 billion Euros over the first couple years, which would be covered by agricultural subsidies and regional aid.
Critics of Turkey’s entry have also pointed out that it’s debt is double the GDP of most other countries, in terms of percentage gross domestic product. This makes even the IMF suggest that the Turkish economy still remains vulnerable.
Either way, talks begin on December 17th, to see whether pan-European reservations can still a process that has been gaining its own momentum for some years now. The United States of America has been keen to push Britain’s hand into allowing Turkish membership, envisaging a prosperous democrative Muslim country as a stablishing factor on the Middle East.
French daily newspaper, Le Monde, expresses concern about the Euro - namely, that it is dependent upon the confidence in the budget policy of each member state.
According to the paper:
“Last year, France and Germany torpedoed the EU’s stability pact” which limits members’ budget deficits to 3% of GDP. “This year it turns out that Greece submitted false figures to satisfy the EU’s criteria”.
“The crisis of confidence is spreading,” the paper says.
“Brussels is now surprised that Italy’s debt has not gone down any faster and is beginning to wonder if Rome too may not have not underplayed its real deficit.”
“The reform of the stability pact, due next spring, must lead to an economic judgment of Europe’s budgetary policy, not to playing hide-and-seek with numbers. And then it must be enforced. And strictly at that.”
After a nervous week for the European Central Bank, which saw record lows against the US Dollar, the Euro has recovered some strength against the dollar, closing at $1.333, compared to the high of $1.346 on Tuesday.
There were fears that the strong Euro could have a serious effect on European economies in 2005. Whilst a low dollar will not please European manufacturing, US actions to try and lift the exchange rate were viewed as positive.
The dollar’s decline has also been accompanied by a 16 year rise in the price of gold and European bonds.