Europe's politicians fiddle while the Euro burns

02/18/2010 9:55 am EST


Jim Jubak

Founder and Editor,

So much for the Euro rally.

After rallying against the U.S. dollar on February 16, today (February 18) the Euro is back to its old ways. As of noon in London the dollar had gained 0.4% against the Euro, sending that currency to its lowest level since May 2009.

Comments from German Chancellor Angela Merkel and other German politicians on the one side and Greek prime minister George Papandreou on the other reminded currency and bond traders that there is still no plan for how to end the Euro crisis set off by an out of control Greek budget.

Merkel poured oil on the fire by saying that Greece had falsified its budgetary and economic statistics for years. And that big investment banks such as Goldman Sachs and JPMorgan Chase had helped the country hide growing deficits.

Absolutely true.  But certainly not helpful in ending the crisis.

For its part Papandreou’s Socialist party government is now pushing for a special parliamentary investigation into public finances and accounting under conservative New Party governments between 2004 and 2009.

The clear danger in both Germany and Greece is that politicians seem to be playing to their domestic audiences rather working to end the crisis. In Germany, where many still mourn the good old days of the Deutschmark before the European Monetary Union replaced that currency with the Euro, any move that smacks of a bailout for Greece is deeply, deeply unpopular. In Greece the government faces strong opposition from its political opponents and labor unions to the budget cuts it has already proposed. The European Union has already made it clear that it wants to see even deeper cuts.

Currency and bond traders are left, then, with a situation where no politician wants to spell out the detail of a plan that would actually end the crisis. And without those details no plan is even vaguely credible.

No surprise then that the dollar, still the safe haven currency in any crisis because dollar markets are so liquid (and hence easy to enter and exit without causing a big swing in prices), is up today against the currencies of 14 of 16 major U.S. trading partners. The Dollar Index, which tracks the dollar against the currencies of six major U.S. trading partners, was up 0.3% as of noon in London.
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