Euro Rate: Who Can Live Happy in EU?

Forex news, euro rate. The year of 2011 has entered the economic history of the world under the sign of European crisis, although there have been a lot of other significant events, including the accident at nuclear power station in Japan, death of Osama bin Laden, outrage at Middle East... What is waiting for us in 2012? One does not have to be a Nostradamus to predict that EU will sing "an old song to a new tune" – the heads of European countries will continue writing their compositions on the topic "What other limitations to invent for loans?" This will prove that no lessons have been learnt.

European Union seems to have concluded a new agreement, which has been initiated by Germany. It defines new stricter rules that limit structural federal loans and set their size at up to 0.5% from annual production volume. In this reference, total size of loans may not exceed 3%. The authors’ intention is that such measures will suppress the emergence of large-scale debts and, consequently, will help to avoid any financial turmoil. It seems like happiness – deal! However...the 3% limit of federal loans had already been discussed when common European currency was introduced. It was then that "Stability and Growth Pact" was adopted by the initiative of Germany. Have everybody forgot about it?

It has appeared not as easy as seemed at the beginning – everything started with temperamental Italy that kept exceeding the 3% limit. However, it has not been the first to break the limit; it was done by... right-minded Germany. As the saying goes, “one fool makes many”, and France decided to follow the example of a “good company”. Only the Spanish were holding on to the bitter end, or to be more exactly to 2008. Moreover, Spain was the only highly developed country in the region with lowest debt in reference to its economy.

Greeks, who are used to “doing themselves well”, got a new angle on these 3 percent and skillfully matched economic parameters.

Consequently, Italy is the worst violator; Germany has been the first to show “the way” to violations, France followed it, whereas Spain shows model behaviour!!!
If everything is truly so, then investors are to be disappointed with France, Italy, and Germany, whereas Spain – on the contrary, being the model of financial attraction. In practice, Spanish risks are supposed to be equal to the ones in Italy, and Germany is supposed to be the safest shelter. How fair is it?!

In fact, it was like this – by 2008 Italy and Spain have already accumulated a large-scale debt; however, it was directly related to government, as “private sector” took a considerable amount of loans. When southern Europe introduced euro, rates have dropped to minimal point, which resulted in agiotage at credit market. In such circumstances German economy gradually started orienting more to export markets, export prevailed over imported goods, and Germans have earned a good profit, which was then loaned to their southern neighbours.

However, this money have helped the Spanish and Italians only to some extent, as their wages started rising rapidly, and they saw the reverse side of the medal – total lack of competitiveness of current monetary policies, which has eventually lead to serious problems in the sphere of export.

It is now clear that even the increase of federal loans could not have been the reason of global crisis, and Spain is a good proof of it (Greece, in this reference, is an absolutely different story...). It follows that even if the governments comply with the set 3 percent limits, there are no guarantees that this will not happen again...

Italy and Spain are standing on a bank of the same river that bears a sad name “recession”, and they have nothing to spend – mortgage borrowers and private companies are concerned about one issue – debt repayment, export is in a standstill because of non-competitiveness, and the countries’ governments have signed agreements on reducing expenditures. That is a sad picture….

Where is the way out? Reducing expenditures… and wait for inevitable recession, growing unemployment, and lower wages. However, shortage of profit brings even more debts and total destruction. Small wages will not serve for the recovery of export sector, as neighbours have similar problems. It will certainly result in numerous strikes, massive turmoil, and hysterics at the markets, which fail to understand if EU is collapsing or consolidation again.

Without reducing expenditures there will soon appear a financial collapse, with all consequences that come with it… That is the newest euro-arithmetic….

Euro rate has failed to keep up to 1.3450 point, euro future 6E has dropped to the point of 33 figure. If the rate goes below this point, there may start a selling wave and a drop to the level of current contract, namely, 1.3145 - 40000 lots.