Sarkozy Threatens To Pull France Out Of Euro

If you were wondering why the market is spooked by rumors that Germany may be returning to the DM, here is actual fact that French President is on the verge of reinstating the franc. And with that, the euro is nothing more than a political toy for Merkel, Sarkozy and whoever the current non-indicted head of the Italian government is, to achieve their political goals. The currency is now dead. Parity coming within a few weeks.

From The Guardian:


The markets were initially unsettled by news that the French president had threatened to pull France out of the eurozone. The startling threat was made at a Brussels summit of EU leaders last Friday, at which the deal to bail out Greece was agreed. according to a report in El País newspaper quoting Spanish Prime Minister José Luis Rodríguez Zapatero.

Zapatero revealed details of the French threat at a closed-doors meeting of leaders from his Spanish socialist party on Wednesday.

Sarkozy demanded “a compromise from everyone to support Greece … or France would reconsider its position in the euro,” according to one source cited by El País.

“Sarkozy went as far as banging his fist on the table and threatening to leave the euro,” said one unnamed Socialist leader who was at the meeting with Zapatero. “That obliged Angela Merkel to bend and reach an agreement.”

A different source who was at the meeting with Zapatero told El País that “France, Italy and Spain formed a common front against German and Sarkozy threatened Merkel with a break in the traditional Franco-German axis.”

El País also quotes Sarkozy as having said, according to another of those who met Zapatero, that “if at time like this, with all that is happening, Europe is not capable of a united response, then the euro makes no sense”.

Well, an epiphany 10 years late is still better than no epiphany. And, of course as many will say, he who panics first, just may salvage something. Which for most American citizens still infatuated with their currency, may mean very bad news.

Euro Hits 4-Year Low on Mistranslated French Comment

The euro fell to a fresh four-year low versus the dollar on Friday after the French Prime Minister Francois Fillon said he only saw good news in parity between the two currencies.

He used the French word “parite,” which can mean either “parity” or “exchange rate.”

Prime Minister Francois Fillon was referring to the general evolution of the exchange rate between the euro
[EUR=X  1.1975    0.0006  (+0.05%)   ]
and the dollar when he referred to the “parity” between the two currencies, a source close to the prime minister said on Friday.

Speaking at a news conference earlier, Fillon said: “I only see good news in the parity between the euro and dollar.

He later used the word “parity” in a different context to mean the general rate.

UBS On The Exasperating Euro

Strategist, UBS

For foreign exchange investors there’s nothing more exasperating than the euro at the moment. Having fallen from above 1.51 against the dollar in December to below 1.19 in June, the euro has since bounced smartly back to above 1.30. Defying predictions of a Eurozone break-up or a further perilous decline to parity, the euro has instead wrong-footed many in the currency market.

Indeed, exasperation explains one of the factors behind the euro’s correction, as investors had become increasingly bearish on the currency. The belated bailout of Greece, sharp bond spread widening within the Eurozone, concerns about competitiveness, and political tensions within Europe all convinced foreign exchange participants that the euro had become a one-way bet. Hence, the euro’s summer recovery has been the clear pain trade in the currency markets, forcing investors to close their shorts.

The reversal in the exchange rate has been driven by stronger data in the Eurozone and renewed concerns about the health of the US economy. In particular Germany’s super-competitive exporters have benefited from the slide in the euro in the first half of the year. An excellent reflection of this is the continuing strength of the Swiss franc. As Switzerland sends 20% of its exports to Germany, the franc is a proxy for the largest economy in Europe. In many ways it is a substitute for the old German mark.

In contrast, the dollar has fallen this summer as weaker US growth has forced Federal Reserve officials to consider resuming quantitative easing. As last year’s inventory bounce has begun to wear off, structural concerns about the health of the US housing and labour markets have come to the fore again.

In the near term the euro is likely to keep its gains; there are still shorts in the market and fears about the Fed will keep the dollar on the back-foot. But the longer-term picture remains bearish. The structural problems of high debts, low growth and diverging current account imbalances remain stubbornly high. Fiscal austerity will undermine Eurozone growth this year and next. The European Central Bank won’t be in a position to raise interest rates until well into 2011, at the earliest.

What are the risks to our long-term bearish euro view? The major concern of course is the Fed resuming asset purchases in order to expand US money supply. This would undermine the dollar as it did in March 2009 when the Fed started a year-long programme of buying Treasuries and mortgage-backed securities. The other concern is that the consensus among foreign exchange participants remains bearish on the euro. As a result, their positioning would keep the markets vulnerable to further exasperating rallies in the currency.

John Taylor Of The World's Largest Currency Hedge Fund Sees Euro Dropping To $1.20 By August

John Taylor, chairman and chief executive officer of FX Concepts LLC, the world’s largest currency hedge fund, sees the euro dropping to $1.20 by August, and believes parity is possible. Be very careful, because as of today Goldman is now accumulating euros (as per its just released Sell recommendation). More from Taylor: “It’s going to be quick because things are really falling apart…. Some of these [countries] have to be thrown out [of the EMU]. If you look at a country like Latvia, which has been effectively in the Euro, has been saved by the European Commission and the IMF much like they are suggesting Greece will be, their retail sales were down 30% last year, the GDP was down 18%, it is expected to drop another 8% this year. Latvians are starving, the place is a disaster area: that’s what you have to go through to be a part of the Euro.” On whether his firm has felt any political pressure on putting on bearish euro bets: “None at all. We are SEC regulated and the information is there, but nobody seems to be caring.” Lastly, Taylor ridicules the WSJ story about the restaurant-based collusion: “Yes, they had a meeting and talked about how bad the euro was. But that they in fact had some impact: their assets are 1% of the daily volume. Somebody like us, we have a bigger position against the euro than those people put on.” Taylor says in the next three to six months, the dollar will be strongest against the euro, and Eastern European currencies. In a longer horizon, he says to be long Asia and short the euro. Bottom line: sell Europe, buy everyone else. And join the bandwagon… Just as Bernanke prepares the dollar’s next suicide move with inflation obviously not working.

Democracy Failure Follows Market Failure

Some very spicy comments from the Hungarian prime minister who basically tells the world to get lost (please admire effort to remain polite on his part). In so many words it’s not his fault, it’s the previous administration’s fault. Sounds familiar? Obama has used it at will, Greece has used it, I heard Sarkozy use it, and just about everybody else! Even Republicans who campaigned to “Drill baby drill!” now blame the BP fiasco on Obama. Needless to say political courage is something that no longer exists, and populism has been the only political program offered to us for now a solid 40 years. The natural extension is for a Prime Minister to just walk in and say: “You know what screw you guys, we will default, I am not taking back tax cuts that got me elected, I am not telling people who were promised early retirement that really it’s not feasible, I’m just not going to deal with any of this. Let’s just default and keep doing what we were doing”. In the same line of thought the French PM declared this morning that there is nothing bad about EURUSD at parity.

If you think it’s bad to sell someone a mortgage they can’t pay, how about promising them a lifestyle they can’t afford! Washington has some nerve to blame the financial industry: “a house for every American” was their idea. Granted there is plenty of blame and jail time deserved at many financial institutions but it is true also for Congress. I used to think that over the past 40 years the commodity that was most devalued was human labor but I have changed my mind. A man’s word no longer has any value in most cases. Should the law be changed so that it holds our leaders accountable for their words? Why not, we would get a hell of a clean slate and something to be finally hopeful about. That is change I would believe in for sure. (more…)

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