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Tuesday, 18 May 2010

Careful Whispers

The foreign exchanges have not been kind to the Euro recently (and likewise Sterling, which those supporters of the new and improved two-headed donkey may care to note). There are good reasons for this, with the Greek debt crisis and realisation that other countries within the Eurozone are well outside the budget deficit limits of the stability pact.

So it is with interest that I hear talk that the Germans are starting to print Deutschmarks as a step towards leaving the Eurozone and going it alone. Is there any truth in the story? Put directly, none at all, but this rumour is not wild speculation: it has been started as part of a very deliberate campaign.

And that campaign is being waged by those, principally in the hedge fund business, who have been betting on a fall in the value of the Euro. There would be no more severe blow to the credibility of the single currency if its strongest member were to leave, and this would bring those hedge funds to the payout window in droves.

The trouble is, it’s not going to happen: the stories recently told that French President Sarkozy threatened to pull France from the monetary union are equally ridiculous. France would suffer terribly if it left the Eurozone, and so would Germany, given its dependency on the rest of those participating EU countries.

When the Euro debuted, the bets were that it was a “toilet currency” and it was sold in huge amounts, but to no avail: it subsequently rallied strongly and even now is trading against the US Dollar at a rate seven points higher than when introduced.

All that the rumours confirm is that there is little change over time in the behavioural patterns of the inhabitants of the casino.

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