Euro holds gains vs. dollar as Greek debt saga plays out

30 Jun 2015 | Author: | No comments yet »

Asian Stocks Rise After $1.5 Trillion Global Rout; Euro Weakens.

Asian stocks climbed with U.S. index futures after following the biggest global selloff since 2013, while the euro pared its quarterly advance as investors watch developments in Greece. Japanese stocks fluctuated as investors assessed the fallout after global equities dropped by the most in two years on concern that Greece will exit the euro.The euro headed for its best quarterly gain in four years amid speculation the European Central Bank will be able to contain any fallout should Greece default.WASHINGTON – If financial markets are the best place to gauge what’s happening in Greece, the worldwide fiscal picture may not be so bleak after all.

Europe never had the preconditions for a successful single currency — above all, the kind of fiscal and banking union that, for example, ensures that when a housing bubble in Florida bursts, Washington, D.C., automatically protects seniors against any threat to their medical care or their bank deposits. The common currency rallied on Monday from a four-week low amid reports German Finance Minister Wolfgang Schaeuble told lawmakers he doesn’t view Greece as a contagion risk for the rest of the euro area. It would yoke neighbor to neighbor under a common economic system and thereby end a centuries-long tradition of the states destroying one another with bombs and bayonets, cannons and crossbows, machine guns and mustard gas.

There was some selling of stocks around the world, but the euro itself was stable in currency markets and the main index of financial volatility, Vix, was much tamer Monday than it had been in some acute earlier phases of the crisis. The MSCI Asia Pacific Index added 0.3 percent by 10:48 a.m. in Tokyo, and the MSCI All Country World Index was little changed after dropping 2.2 percent Monday. Leaving a currency union is, however, a harder and more frightening decision than never entering in the first place, and until now even the Continent’s most troubled economies have repeatedly stepped back from the brink.

The Standard & Poor’s 500 Index sank 2.1 percent on Monday, while the Stoxx Europe 600 Index dropped 2.7 percent. “All eyes this week will be on the ECB, which has the potential to announce a front-loading of its QE program,” said Matthew Sherwood, Sydney-based head of investment strategy at Perpetual Ltd. “That should help stabilize things.” Greece plunged into financial turmoil as Prime Minister Alexis Tsipras decided to put creditors’ demands to a referendum. Firms that rely on Europe for sales were mostly lower for a second day, with video-game maker Nintendo Co. and camera maker Nikon Corp. falling at least 1 percent.

After the nation imposed capital controls and shut its banks, the focus Tuesday shifts to whether it will default, with $1.7 billion due to the International Monetary Fund. The failure of the EU to deal with the problem in Greece in a way that respected its ideals of democracy and its goal of prosperity will mark a historic reversal in the economic and political integration of the continent. Commerce can both humanize the barbarians beyond the border and, more important, make taking a share of their booty substantially easier and less risky. From now on, it will be all downhill for the so-called “European project” – the illusory dream of a United States of Europe with full fiscal and political union along with monetary union. What better way, then, to broker a perpetual peace than to grease the wheels of commerce among Germany, France, Greece and more than a dozen other once-enmity-filled economies?

A Johnny-come-lately to what was then called the European Economic Community, Britain has been a skeptical fellow traveler all along, opting out of the joint currency and now seeking a “renegotiation” of its membership before voting in 2017 whether to exit the EU altogether. About $1.5 trillion was erased from the value of global equities Monday after Greece short-circuited bailout talks by calling a referendum on creditor demands. Establishing a common currency was meant to facilitate the cross-border flow of goods, services, people and capital, and thus bond disparate countries through the mutual benefits of trade. That remorseless logic of integration is one of the reasons we didn’t join the euro and we don’t want to in the future.” There is still a tendency to dismiss political dissatisfaction with the EU’s economic orthodoxy as a fringe phenomenon, even though the far-left parties like Podemos in Spain and the Five Star Movement in Italy and far-right parties like the National Front in France now have the support of one quarter to one-third of national voters.

Futures on Hong Kong’s Hang Seng Index dropped 0.1 percent and contracts on the Hang Seng China Enterprises Index declined 0.4 percent in most recent trading. But if the traditional mainstream parties in these countries hope to remain viable, they will have to acknowledge the legitimate skepticism of voters who support these parties. Shocks hitting one country would heave themselves across the continent if individual countries could not easily adjust prices through their exchange rates. Even if there is a Greek referendum vote that accedes to the EU terms, or even if there is some last-minute miracle accord that allows both sides to save face, most of the political damage has been done and cannot be undone.

It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues.” Friedman’s predictions look prescient now, though they didn’t at first. Cases of successful austerity, in which countries rein in deficits without bringing on a depression, typically involve large currency devaluations that make their exports more competitive. Thanks to the currency union, Greece no longer had the means — currency devaluation — to inflate away its debts and export its way out of a deepening recession.

Instead, its euro-zone family members — particularly Germany, the effective patriarch — insisted on keeping inflation in the shared currency ultra-low, which was precisely the opposite of what Greece needed. Furthermore, the other euro-zone members insisted that Greece institute severe austerity measures in exchange for the emergency lending it needed to avoid tumbling headlong into default and depression.

This is not tiny little Greece and poor little Portugal, but two of the biggest economies in Europe and essential to any organization wanting to label itself European. Business columnist Darrell Delamaide has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron’s, Institutional Investor and Bloomberg News service, among others. The problem has always been the risk of financial chaos, of a banking system disrupted by panicked withdrawals and of business hobbled by banking troubles and uncertainty over the legal status of debts.

In recent years, according to the European Commission’s “Eurobarometer” polls, Europeans, and in particular those in the troubled countries on the European Union’s periphery, have become substantially less likely to say they feel “attached” to Europe (67 percent in 2007 vs. 56 percent last fall). That’s why successive Greek governments have acceded to austerity demands, and why even Syriza, the ruling leftist coalition, accepted the austerity that has already been imposed. Syriza, the far-left party now leading (a strong word) the country, was swept into office last winter by complaining that the country’s creditors were brandishing Greek debts as a cudgel to rob the Hellenic state of its sovereignty. Now, Greek leadership may merely want to prove that it, too, can skillfully wield weapons of mass economic destruction — this time, by blowing up the euro zone.

The Korean won and Malaysian ringgit gained at least 0.2 percent, while New Zealand’s dollar extended losses near a five-year low, dropping 0.4 percent.

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