Dollar set to remain the reference currency for a long time yet

In a recent opinion piece, the German foreign minister Heiko Maas discussed how Europe needs to reassess its partnership with the United States, stating that the two areas have been drifting apart, requiring them to reshape their relationship in light of recent changes, and calling for an assertion of Europe’s autonomy in diplomatic, military and financial terms.

German Chancellor Angela Merkel disputed this point of view, refuting this notion of drifting apart, which she believes would damage the very long-standing relationship between Germany and the US, which acted as the foundations for North Atlantic relations. It would also require greater political integration within Europe, which is not the direction Germany wants to take, opting instead for a sort of federal approach without a federal government, but with strict rules for each State. This sits in contrast with French president Emmanuel Macron’s aim and the idea of a substantial European budget to influence the pace of European construction.

Heiko Maas also raised the issue of dependence on the dollar Continue reading

Exit from the Euro Area: Uncertainties and Risks

I write a weekly column on the Forbes French website. I will now translate them into English. You can find the original column here in French.
You will find below my yesterday’s column on risks associated with an exit from the Euro Area

The presidential and general election dates are fast approaching in France and the issues at stake are becoming clearer. One question that keeps coming back to the fore is France’s exit from the Eurozone. Commentators focus most particularly on what would happen in the immediate aftermath, once the country formally exits the currency union, and they are quite right to do so, as a number of very relevant questions need to be raised. Continue reading

A Two-Speed Euro? Not a Good Idea

In an article in the Financial Times, this morning (see here), Joseph Stiglitz suggests a two-speed euro area. There are two points in this article: One is the usual bashing of the euro as a very bad idea, the second is on the necessity of a two-speed Eurozone from the current situation. The main reason is associated with the absence of adjustments between countries that do not go at the same speed and with very different characteristics. Therefore the dynamics is far from optimal leading to a very inefficient situation according to Stiglitz.

A two-speed euro is not a good idea as I think that it would be the end of the Euro Area. Continue reading

My Daily Column: Euro Area – Elements for a recovery

Every morning I record a podcast in French (see here) on a specific topic. The text below is the translation of this morning podcast.

The combination of a more competitive euro, an oil price at $ 70 and a proactive monetary policy will be strong support for an economic improvement in the Euro zone.
For now, this situation is not good. Surveys like PMI/Markit show a fragile dynamics, while in the same time, consumer confidence is bending on the downside.

The fall of the euro will have two effects
First it will restore European companies’ competitiveness. Given their recent performances, France and Italy will benefit more because of their current poor exports’ performances. Continue reading

In the first quarter, the Fed’s balance sheet was larger than that of the ECB

During the first quarter, the Fed’s balance sheet became larger than that of the ECB. Each balance sheet is now close to 23% of its respective nominal GDP.
The chart shows differences in monetary strategies. The ECB line is characterized by its temporary increase from the end of 2011 with the two LTRO. We notice that the Fed has had almost no reversal in its strategy. Measures were not temporary. That’s a real difference and the current perception is that the monetary policy has been more accommodative in the US than in the Euro Area.
We cannot imagine spontaneously a weaker euro is this situation. The amount of euro offered by the ECB is on a weaker momentum than the amount of dollar offered by the Fed. This can be related to a strong euro.
But what would be the impact of the TLTRO? Continue reading