The problem with euro-dollar parity

The euro is nearly level with the dollar. It should not matter in theory, because of the relatively low share of the US in EU trade. But it does in practice. Some predict that the euro will fall below parity. There is a straightforward explanation for this: the war in Ukraine and unpredictable Russian gas supplies to Europe make the dollar a safe haven for investors. On top of this, US interest rates offer a higher return on investment. But it is not only the dollar. Looking at the broader picture, the European Central Bank’s measure of the euro’s real effective exchange rate against 42 partner countries confirms this trend

Has Christine Lagarde just let slip the truth about the euro?

Ursula von der Leyen dispensing vaccines, with a halo over her head perhaps? Emmanuel Macron riding a tank to symbolise the continent’s strategic autonomy? Or various commissioners whose names no one can quite remember setting carbon targets, fining Google and Apple, and dishing out grants for roads, bridges and tunnels?  It remains to be seen just what the European Central Bank comes up with for its planned re-design of the euro banknotes. One point is perfectly clear, however: the makeover will reveal the currency’s true colours as a vehicle for European integration rather than an effective instrument of economic policy. In fact, if the ECB really wanted to redesign the

The eurozone’s Covid recession has arrived

The US is booming. The UK is set to grow at the fastest pace in half a century. China is expanding again at a blistering pace. Stock markets are rising. And commodity prices are racing ahead.  Across most of the world, economists are starting to worry about a runaway boom, stimulated by too much easy money. This, they fear, could easily run out of control. There is one exception, however: the eurozone. As of today, the zone is officially in a double-dip recession. The vaccine downturn has arrived. And while the consequences remain unpredictable, one thing is clear: they won’t be good. The reality is that the eurozone was already the

The EU is stepping up its raid on the City of London

It is not usual for the Governor of the Bank of England to ask permission to make a statement about a completely unrelated issue when giving evidence on inflation to the Treasury Select Committee. So we knew it was serious when Andrew Bailey yesterday told us his concerns about Brussels trying to force banks to relocate their euro clearing from London to the EU.  It is not a surprise that the EU wants to do this – France has been pushing for this for years before Brexit, leading to it losing a case to the UK at the European Court of Justice – but what is concerning is the desperate

Can ‘super’ Mario Draghi save Italy from itself?

In the aftermath of the financial crash, two ‘Super Marios’ came to Italy’s rescue. Mario Draghi, then president of the European Central Bank, and Mario Monti, an economics don turned politician, both helped steady the ship. Now, more than a decade on, one of those Marios is back. But is he the man Italy needs in its hour of need? Draghi, who is set to become Italy’s new prime minister, has followed a well-trodden path to this moment. Like Monti, he has worked in academia and is a Goldman Sachs alumnus with a stellar EU career on his back. It all sounds very familiar. But can Draghi avoid the fate of the other

The EU’s vaccine shambles is turning into a re-run of the euro crisis

Rewind a few months, and it was all meant to be very different. With Covid-19 rampant across the world, the European Union would take charge of sourcing vaccines from the major drugs companies. Its massive buying and regulatory power, coupled with its finely-tuned administrative machine, would make sure its 440 million people were protected from the virus before anyone else. It would be a magnificent demonstration of the whole point of the organisation. The trouble is, not only has the project already started to come off the rails, it is getting worse with every day that passes. Europe’s vaccine alliance is crumbling with potentially far-reaching consequences. Europe’s vaccine alliance is

Thatcher was completely right about the Euro

It was a ‘rush of blood to the head’. Its central bank would prove to be hopelessly ineffective. And cultural differences would remain too deeply ingrained for an internal market to ever work as it should. We learned this week from papers released in Dublin that Mrs Thatcher was completely damning about the idea of a single currency for the European Union. Looked at with the benefit of 30 years of hindsight, however, it is clear that the most remarkable point about her views is not just how intransigent she was but that she was completely right. The Euro has been a comprehensive failure, just as she said it would

Will Western economies be ‘turning Japanese’ after Covid-19?

Japan has announced a colossal stimulus package (£1.75 trillion) as it attempts to breathe life into its Covid-19 damaged economy. But with its finances already in a parlous state before the pandemic struck, economists and policy makers around the world are nervous about where this dramatic intervention in one of world’s most fiscally conservative nations could lead. One of the biggest problems Japan could face is its own currency. The Yen has traditionally been a safe haven in times of global uncertainty but not, it appears, right now. A fall of nearly 10 per cent against the dollar was recorded in March, as investors rushed to the world’s most powerful