The ECB needs to speed up its act, and be a little less conservative, as I put it here:

http://zelo.tv/pooAQZ

Strange paradox – the single currency is strong while many of the economies using it are having a hard time.

Strange paradox – the single currency is strong while many of the economies using it are having a hard time.

On the other hand, the two are probably linked. I’m sure Greece, Italy, Spain and Portugal would love a little external demand!

I don’t know how much the stock market matters. Isn’t it about time investors noticed the world economy is weak?

Here’s a relaxed take on it:

http://blogs.reuters.com/felix-salmon/2011/08/04/what-does-the-stock-sell-off-mean/

@ 1. Tim Fenton

It is not really a ‘ strange paradox ‘, Tim. If you think about the external value of the euro as having embedded the constituent weightings of each member. The weaker members drag the currency down from where it would be without the weaker members. The stronger members raise the value of the currency from where it would be without the stronger members. Therefore, we have an apparent equilibrium that is not an actual equilibrium for any of the members. The dominant factor in understanding the euro is that it still contains Germany as the largest member. Therefore, there is still a hidden D-Mark element to the euro.

Think about what would happen in the event of a euro-core currency containing only the strong economies of the north. The currency would appreciate considerably. JP Morgan analysts reckon the EUR-core/USD would appreciate above 1.80. Therefore, the current euro for the core could be around 40% undervalued. Hardly surprising that Germany and surrounding nations have enjoyed something of an export boom. On the other hand, the southern periphery are operating with a currency that is 40% overvalued. So no surprise why they are doing badly. Therefore, it is not an equilibrium for any of the members. The euro is both weak and simultaneously strong as the two forces work to offset each other.

Moreover, European trade is pretty much net balanced, albeit with significant internal imbalances. That helps in the battle of least ugly currencies. The ones I feel sorry for are Switzerland, who have attracted the unwanted capital flows that would previously had flown into the D-Mark. Germany being a much larger economy could have coped much better. The CHF has significantly appreciated and will damage Swiss firms profitability. Their costs are in CHF, and their cross-border revenues are worth much less. The Swiss franc is at record levels vis-a-vis the euro.

Right Left outside. It is starting to smell very very bad. Here in Australia, we have been spared a lot of the Euro grief due to high commodity prices. However, our market got smashed yesterday along with everyone elses.

The thing about the crash starting again is that those who think borrowing money or spending what you don’t have is a good idea must now see that it isn’t.
This is a lesson the left just don’t want to learn, but must do.

@6 – What rot. Flatline growth and inflation are the dangers.

We are not Greece, Spain or Italy. We do not have to do the kind of social cleansing the Tories are rubbing their hands over, or smashing pillar of future growth with the glee they’re displaying.

We’re heading for more debt AND cuts AND no growth.

@7

You make my point for me!