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Has The Euro Turned A Corner?

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I see that Gavin Hewitt the BBC's Europe Editor is wondering if Europe has turned a corner.

Suddenly it's spring time in the eurozone. The dangerous winds that threatened the single currency have subsided. The icy disdain from the bond markets has receded. Or so it would appear.

Ministers and officials have suddenly shed their nerves. The German Finance Minister, Wolfgang Schaeuble, says "I don't expect that there will be further major shocks". The French Finance Minister, Christine Lagarde, declares "the euro has turned the corner".

Even the Chief Executive of Barclays Bank, Bob Diamond, says the question of whether the eurozone will stay together is last year's story and "off the table".

It certainly helped that China told a visiting EU delegation in December that it would support the euro by energetically buying European bonds.

Although oft-repeated, it has clearly also helped that France and Germany have co-ordinated their defence of the euro. President Sarkozy was animated when he said in Davos "Mrs Merkel and I will never - do you hear me, never - let the euro fail".

This is an interesting view from Gavin Hewitt. However I notice that one of the comments on his blog has laready pointed out an inconvenient truth from Mr. Hewitt.

"I am a little unclear how you can say the Euro has turned a corner Gavin when Irish government bond yields are above 9% again and Portuguese ones are above 7% again. I seem to remember before that you called these crisis levels."

What does everybody else think?

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Just read somewhere on Zerohedge that Sarkozy, Merkel etc. are talking about a bond swap for Greece where some existing bond holders get new bonds worth only 65% of the original bond, because Greece can't afford to ever pay what they really owe. Of course, it won't be the banks that take this haircut, but pension funds, in turn this will cut pension payouts and suck the grey pound from EU economies, causing further economic decline.

We are going to have a crash, whichever way they try to cook the books. It seems their only aim is to keep the banks in clover while everyone else takes the pain.

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What was troubling the EZ, debt, is no longer an issue which should clear the way for the Euro to appreciate thereby crippling their export led recovereh.

If they say its all contained it is. The key is maintaining that perception in the minds of the bond and FOREX traders.

So far, they have bought the recovery.

This may be the reason for gold having gone soft. No crisis--no need for a hedge. And it looks like Egypt is a huge damp squibb too--just a mild leadership change.

Sunshine for a awhile longer methinks.

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Havent Spain just increased the retirement age from 65 to 68?

That means you get your pension for 3 years less, instead that money can be used for something else, like repaying bondholders. No wonder that Spanish bonds are rising in price.

Will others see this and follow in Spain's footsteps? I think that there was a call here to raise the retirement age to 68 by 2020, that would certainly help with our own budget troubles.

Inroads into unpayable pension promises are good, but there is further to go. Public sector pensions also need to become payable at 68, with pro-rata reductions in accrued benefits, including for those already retired, it is unfair for the young to shoulder all the burden. And we need to get public sector pay down.

Perhaps the start of a solution though?

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One still has to remember that bailing out the troubled economies and fiscal stimuli means depreciating the core value of the currency.

It is no different from a company issuing more shares to buy back some which are already issued.

Furthermore, the main problem disparate economies in the holistic mix still remains.

Once one examines the core metrics of Spain, Portugal, Italy, Ireland, Greece etc, such as unemployment, falling tax revenues, etc, simply adjusting one such as compelling workers to work more years for the same pension (Which was on the cards anyway: since circa 1980, so it's nothing new!) then the problems causing the Euro's dysfunctionality remain.

What has taken the pressure of, temporarily has been the problems with the US Dollar, the Yen and the Pound.

Same as you and your neighbour: despite the reality that you are only just managing to survive and using credit to pay utilities (or even mortgage/rent), you feel superior to the guy whose house has just been repossessed. Smug in fact: despite the reality that your house could well be next!


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