E-mail:    

As shown on Figure 2  Since 1 January, 2002 the Franc has gained nearly 27% on the Euro. However, over the same time frame the Franc has gained nearly 39.34% on Sterling; nearly 43% on the Dollar and nearly 56% on the Yen. Further proof that the unpegging streaking across charts everywhere on 15 January 2015 was a mere flash in the pan; the Euro has proven itself when the entire tapestry is viewed2.

The Power, Perception, Why the Euro, might, well, outperform, expectations, 2016, Fundamental Analysis, fx trader, forex Grid Comparison Fig.2. Swiss Franc against Euro, Sterling, Dollar and Yen, since January 2002

There never seems to be a shortage of omens portending impending Eurozone doom, particularly in the wake of the great credit collapse of 2008. Unsustainable debt to GDP ratios plagued ‘peripheral members’ Ireland, Portugal, Spain, and Cyprus all  compounded by several Greek crises and chronic disinflation, (if not outright deflation). It was the age of bailouts. Since that time, Ireland has had the most remarkable turn-around: from the 2009 low of -5.6% GDP to its 2014 +5.2% and recent 2015 annualized +6.5% growth estimates. Although owning its own share of economic and political problems, Spain’s economy seems to be turning a corner having preliminary 2015 GDP growth3 at 3.2%. Even the most troublesome of the lot, Greece, may finally have the political and public will to compromise with the European Commission; additional inter-EU capital investment will further stabilize the economy4. Six years ago, Ireland was written off; condemned by perception. Was the perception of the 2009 Irish economy not like those others today?

On the world’s economic stage, the European Union and the Euro is playing its part well. The problems it faces may be different, but neither better nor worse than those of the rest of the global economy. Consider the Asia-Pacific region. The Japanese economy is still wrestling with stagnant growth and a textbook perfect liquidity trap; China’s astonishing expansion has reached its limit and now must readjust its gigantic industrial economy towards sustainable growth, particularly with respect to its valuation of the Yuan. Commodity export economies, like Australia and Brazil were at full throttle when China’s demand literally shut down, creating an economic contraction ‘domino effect’. Oil cartel states are engaged in a war of production attrition against newly emerging, or reemerging oil producing states, draining the cartel’s foreign asset reserves in the process. If anything, lower commodity and fuel prices may prove to be an unexpected benefit towards the EU’s continuing recovery. Further, it seems likely that the Yuan and Yen will need to weaken further. What will that mean for the Euro, relatively speaking?

What seems to make the EU standout is the perception that a single national economy, confined within the borders of one nation is more stable than a collection of independent states unified under one economy and one currency. Which brings up the point that the United States was just such a union and until 1913 did not have a unified currency regime, nor a central bank5. Yet, in those years following the issuance of the US civil war federal currency, (called the greenback6), until the 1913 Federal Reserve Act which created a central bank and single currency, the United States became an industrial powerhouse. And it did so in the shadow of the enormous British industrial-colonial super power empire.

Admittedly, the failings of the European Union go well beyond perception. Some of its issues may be attributed to the outmoded, traditional text-book quantitative easing tool applied to a modern economic union7 as complicated as the EU. There are particular rules governing the actions of the ECB, to be sure. There are also conflicting views on economic theory among the leading central banks, for instance Austrian economic theory vs Keynesian economic theory, and so on. However, with respect to the EU, economic theories are meaningless. Trade is the key to the EU! The very premise of an economic union is to encourage and expedite inter-union cross border trade! However, quantitative easing is actually working against non-Eurozone members and consequently EU solidarity! The chart on Figure 3 demonstrates the degree to which inter-EU trade weighs on the 28 members.

The Power, Perception, Why the Euro, might, well, outperform, expectations, 2016, Fundamental Analysis, fx trader, forex Intra Extra EU28 TradeFig.3. Intra-Extra Trade Weight on EU Members

<<Previous     Next>>