I agree with your comments about the worrying state of the EU financial policy making and understand what you mean in your response.

I seem to be the only poster here not working or hobbying in finance or accounting, so sorry if I bore everybody, but I’m still not convinced of the structural soundess of this post’s argument, summarized thus:

- Why is the EUR falling against the dollar?
- Because the EUR is a fiat currency (somehow not rooted in real economic activity)
- Because there is no real EUR lender of last resort
- Because each of the EUR states is pulling the cover to themselves and not acting in concert for the EUR economic zone.
- Therefore the current crisis could mean the end of the EUR.

The problem, and I guess the misguidedness of my initial question stemmed from that, is that the question that you start your post with is “Why is the EUR falling against the dollar?” And it is in answering this question that you bring these arguments to the table, which, though valid, cannot answer the question you asked, because precisely the EUR is still at very high levels against the dollar.

If all your points about EUR support are true, and they are, then the real question is not “why is the Euro falling against the dollar?”, it should be “Why is the Euro still so strong against the dollar?”

Though, again, no expert, I would venture that it probably has to do with the fact that the Euro is a national currency in all the Euro countries, hundreds of millions of people use it to buy milk, iPhones or theater tickets, businesses use it to buy services and materials, investors use it to purchase stocks, other currencies or financial products, insurers insure value with it, salaries and pensions are paid with it, etc., all forming the second largest economy in the world, that is supported by a broad agreement on, and enforcement of, various economic indicators relative to, surprise, debt in particular and account balancing in general.

So the EUR has its issues with policy and providing a last resort phone number, but that’s not the be all and end all of a currency.

Moreover, if the EUR leaders, such as your namesake, have egg on their faces, it’s not because of the lack of coordination of a EUR-wide response, it’s because of the about-face that she had to make, just as Paulson/Bernanke had to make after Lehmans. It’s the same egg.

The EUR zone is highly integrated economically, and although politicians will indeed flail around and gnaw their teeth at each other, they all face the same crisis, the major institutions, especially banking ones, are cross-border (see the Fortis/Amro/BNP saga, the Dexia bailout), and they will each bail out their banks and insititutions with tax-payer money, like Paulson/Bernanke.

There are many other considerations, such as the mandate of the ECB and the principles of the European Commission policy-making (which has remained ostensibly silent) that we can talk about in terms of the ability of the EU and/or EUR zone to respond to crisis, and much to agree on. I just think that reports of the death of the EUR are highly exagerated.

I agree with your comments about the worrying state of the EU financial policy making and see what you mean.

I seem to be the only poster here not working or hobbying in finance or accounting, so sorry if I bore everybody, but I’m still not convinced of the structural soundess of this post’s argument, summarized thus:

- Why is the EUR falling against the dollar?
- Because the EUR is a fiat currency (somehow not rooted in real economic activity)
- Because there is no real EUR lender of last resort
- Because each of the EUR states is pulling the cover to themselves and not acting in concert for the EUR economic zone.
- Therefore the current crisis could mean the end of the EUR.

The problem, and I guess the misguidedness of my initial question stemmed from that, is that the question that you start your post with is “Why is the EUR falling against the dollar?” And it is in answering this question that you bring these arguments to the table, which, though valid, cannot answer the question you asked, because precisely the EUR is still at very high levels against the dollar.

If all your points about EUR support are true, and they are, then the real question is not “why is the Euro falling against the dollar?”, it should be “Why is the Euro still so strong against the dollar?”

Though, again, no expert, I would venture that it probably has to do with the fact that the Euro is a national currency in all the Euro countries, hundreds of millions of people use it to buy milk, iPhones or theater tickets, businesses use it to buy services and materials, investors use it to purchase stocks, other currencies or financial products, salaries and pensions are paid with it, etc., all in the second largest economy in the world, that is supported by a broad agreement on, and enforcement of, various economic indicators relative to, surprise, debt in particular.

So the EUR has its issues with policy and providing a last resort phone number, but that’s not the be all and end all of a currency.

Moreover, if the EUR leaders, such as your namesake, have egg on their faces, it’s not because of the lack of coordination of a EUR response, it’s because of the about-fa

RK — saw that, another good post from Paul.

Jay — yes, he may have been early, as Steve Hanke was to the Baltimore Security Analysts Society back in 2002. And, Euromoney predicted much the same at the Euro’s inception.

vfwh — this isn’t the first time I have said this, and no, it is not off of the currency moves, but out of the disarray of EU policymakers, who are pursuing national, not EU interests.

While it may very well eventually break down in a crisis, as did all the various metallic standards, it’s also possible it survives for a while yet. It’s possible, for example, that one or two members choose to revert to a national fiat currency in order to devalue their way out of trouble, and provide an example of what happens when you go down that road.

Thanks for your blog.

Pls add some color to your “….similar to Texas in the US.” comment. I have trouble following

That being said, I haven’t pulled the trigger. I was ready to a couple times, but didn’t get to it and the price ran up where I wasn’t interested anymore. Lately I’ve come to the opinion that the dollar is going to run up in a flight to safety, but long term, these combined trillion dollar bailouts are going to cost us.

One thing I am not sure about, is whether there are long-term risks to owning the FXS. If anyone is able to comment to that I’d be appreciative.

The lack of confidence in the US currency and the various economic ailments of the US pushed it as far up as almost 1.6, now, seeing as the Euro zone is also exposed to the credit crisis, it seems to correct dramatically. However, it’s still at these levels that many people thought already extraordinarily high a couple of years ago. Remember the Euro was introduced at roughly 1USD and went as low as 0.8USD in the first couple of years.

So can you explain how it’s “collapsing” right now to the degree where you seem to consider that it’s even reasonable to question its very existence?

I’m no expert, there may be a lot of good reasons for your statements, but they don’t seem obvious in the light of the pure USD/EUR relationship (even if you throw the JPY into the mix).

Thanks in advance.