The Euro

We had the Irish bailout on Sunday night, and it was no surprise, at least to me, that the euro fell against major currencies on Monday morning. The European Commission and the European Central Bank seem to be living in a world of their own.

First, announcing major events on a Sunday night. This is the clearest sign of desperation. Assuage the markets before Tokyo opens, in the hope of a bit of good press. Naive.

Second, they then all sit back and assume the problem has gone away, just as they did with Greece.

The nature of markets is this: if everyone knew, for example, that the dollar was going to fall, you wouldn’t make any money selling it. To make money you have to be the first, and this means constantly testing the accepted structure, just as the markets did against sterling and the lira in 1992 until the markets won and the status quo lost. It may not be tomorrow or next week, but it is clear, now the scare is out there, that the markets will have a tilt at Portugal, Spain, perhaps Italy.

The only way to prevent this is to have a long term plan. I wrote many months ago that the Eurozone either needed a procedure for a country to leave it, or it needed a procedure for allowing a country to default. At present there is neither