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The EU finance ministers are to meet in Luxembourg on Monday 7 June faced with some uncomfortable questions about Europe’s economic outlook. That discussion will be preceded by a meeting of the Eurogroup, the eurozone finance ministers. The president of the ECB will be urging the Eurogroup countries to reduce their deficits. Ministers are expected to sign off on the final details of a €440 billion special purpose vehicle, intended to raise money on markets which can then be lent to struggling eurozone states. The vehicle is the largest component of a €750 billion bail-out assembled by the EU and IMF in May. Its duration will be prolonged to five or six years, from the initially agreed three, following concerns that recipient countries would need longer to pay back the loans. An overall agreement was reached on Friday, following a series of phone calls between Paris and Berlin.

Under the final plans, national Parliaments will be given no veto power over future activation of the mechanism, in spite of the strong demands for that from Germany, Austria, the Netherlands and Finland. It has also been agreed that the fund will lend money at market conditions, i.e. without applying lower interest rates to borrowing countries. According to Reuters, the loans will be guaranteed by the whole eurozone bloc, despite Germany favouring making each country responsible for its own share of money lent.

The meeting in South Korea on Friday and Saturday of finance ministers from the G20 group of advanced and developing economies has exposed differences over approaches to growth that will not reassure the financial markets. The meeting saw heated exchanges between US and European representatives, with division centering on the speed at which government budget deficits should be reduced. US treasury secretary Timothy Geithner argued the case for fiscal consolidation over the “medium term,” while Europeans, rattled by the region’s ongoing debt crisis, called for faster cutbacks.

In addition, the debt markets were hit on Friday by concern about the possibility of a default by Hungary and the Hungarian forint fell sharply on the foreign exchange markets. On Friday a press aide to newly elected Prime Minister Viktor Orbán said Hungary could miss its deficit-reduction targets and would need to work to avoid a default. Ministers in the centre-right government back-tracked their rhetoric over the weekend saying the original statements had been intended for domestic political gains, possibly to justify spending cuts.

French PM François Fillon also said on Friday that the weakening currency was “good news” because it could boost European exports, further accelerating a currency slide and prompting the sale of French government bonds.

On Monday morning, after disappointing news from the US job market and new European debt woes, the euro currency fell to a fresh four-year low trading on Asian markets – hitting under the 1.19 mark for the first time. Against the Yen it dived to an eight year-low as analysts see another week of hammering for the single currency. The euro dropped 2.8% over the weekend to $1.188, its lowest value since March 2006, before rebounding above $1.19. This placed the value of the dollar at 0.8419 euros. On Friday the euro had fallen below the psychologically important benchmark of 1.20 dollars. Analysts said economic insecurity had prompted investors to focus on the dollar as a global reserve currency.

Sources: European Voice, EUobserver, Euronews

One thought on “Today: Euro Hits 1.19 Dollars, EU Finance Ministers and Eurogroup Meeting

  1. The Euro Stability Task Force, of European Finance Ministers, led by Herman Van Rompuy, president of the European Council, has reached agreement on the technical aspects of the special purpose vehicle, SPV, that would borrow up to 440 billion euros with euro zone country guarantees for euro members in trouble, according to sources quoted by Reuters in Friday June 4, 2010, article entitled Details Agreed For Euro Zone Loan Vehicle, with reporting by Jan Strupczewski and Julien Toyer.

    The rescue fund was originally agreed upon over a dramatic weekend of summitry on May 8th and 9th to ward off what many feared would be a Black Monday, May 10, with the euro imploding amid a chain reaction of sovereign debt default along the Mediterranean.

    The SPV is technically known as the European Financial Stability Facility, which is for all practical purposes, establishes a EU Treasury, for extending loans to nations experiencing sovereign debt distress.

    The SPV’s funding by Eurobonds, is going to be sovereign debt deflationary, financial institution deflationary, and price inflationary to the peoples and businesses of Europe for two reasons. First, the funding by EFSF issuance of bonds is tantamount to monetization of existing sovereign debt; and second, the purchasers of the bonds are likely going to be banks in Europe, which stimulates a speculative interest in purchasing lending institution credit default swaps and short selling of banking stocks.

    It is significant that the European Financial Stability Facility, will take national governments out of the equation: There would be no need for the SPV to ask national parliaments for approval of its actions each time it has to borrow, the sources said.

    Thus, we have a hierarchical authority for monetary seigniorage in Europe. This by definition establishes Economic Governance over the all countries which have agreed to the $440 Euro billion of funding. A “One Euro Government” was created on May 9th, 2010, by joint EU Finance Leader and State Leader announcement; and it will be funded by the SPV, the EFSF, located in Luxembourg.

    Thus a region of global governance, one of ten called for by the Club of Rome in 1974, has coalesced out of the European debt crisis. National Sovereignty is a principle of a bygone era; the will, way and the word of the Continent’s leaders is the law of the land which establishes regional economic governance as Sovereign. The leader of the EFSF, will be Europe’s Seignior, meaning as Elaine Meinel Supkis communicates, top dog banker who takes a cut off the top for the creation of money and establishment of credit. The effect is that one is no longer a citizen of a nation-state, but rather a resident in a region of global governance. A European wide sovereign debt crisis arose, and on May 9, 2010, constitutional and treaty law was superseded by announcement at a Summit of European Leaders of a broad Framework Agreement for European Economic Governance.

    According to the Reuters article, “the idea of the SPV emerged in May, as a way to help euro zone countries to which markets effectively refused to lend like recently in the case of Greece. But unlike in the case of Greece, it would be the SPV that would borrow on the market against guarantees issued by all 16 members of the single currency area. In Greece’s case, each of the euro zone countries has to go to the market and raise the money individually to extend bilateral loans to Athens”.

    If banks purchase the EFSF’s bonds, I have to ask where will the banks get the money? Probably from selling of assets, that is debts, to the ECB, for which they may have to take a loss if the asset is sold at market price and not their original and much higher cost. I have to question why a bank would do this? The answer comes back because of political pressure from the SPV, and the state’s Finance Minister. Only time will tell to what degree the European Financial Stability Facility is going to be successful selling what amounts to Eurobonds.

    At first, I thought that the ECB, would become the dispenser of funds. But then again, where politics is involved, there has to be a “bickering organization”, a “congress”, where loan decisions are hammered out in political process. The loaned money, as Elena Moya wrote in article How The EU Bail Out Will Work, is to come through a special purpose vehicle.

    It is likely that the EFSF’s powers will eventually go beyond the issuing of loans, and be a major force in the economic governance of Europe, with vetting of state parliament budgets, issuance of austerity measures, and application of sanctions for failure to reach assigned goals.

    Frankly, the idea of leveraging the collective credit worthiness of all Euro countries to provide funding for those who are not so credit worthy is utter nonsense, as most all are credit unworthy. We are witnessing the creation of debt at the most inopportune time as Debt Deflation Is Underway As Aggregate Debt Peaks Out And Stocks Fall Lower.

    As it stands now the proposal for establishment of the EFSF Monetary Authority and its issuance of Eurobonds will go for approval at the June 17th EU Finance Ministers Summit. Under global governance, task groups meet to propose policy, which is submitted to Leaders who announce Framework Agreements at Summits which become policy for governmental mandate; then stakeholders carry out the policy, and the people follow.

    Given the economic destructive nature of more debt, I suggest that one be invested in gold coins.

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