Armstrong Economics Blog/Euro €
Re-Posted Mar 8, 2018 by Martin Armstrong
The man who is killing the Euro as a viable currency is none other than Donald Franciszek Tusk who is a Polish politician who has been the President of the European Council since 2014. He is the living example why politicians MUST be prohibited from making any decisions whatsoever regarding economics and finance. These people have ZERO qualifications in the field yet rise to the top of politics and then assume positions based entirely upon politics – not economics.
The crisis that is pending for the Euro is all about political control. The desire of British banks to achieve free access to the European Single Market even after Brexit and this was rejected by the EU. Council President Tusk spoke out against maintaining the British-European financial center in London after Brexit. He fails to comprehend that NEITHER the French nor the Germans possess the infrastructure no less the expertise to maintain global markets in the Euro.
Tusk claims that Britain is trying to be like Norway which has free access but pays dues as a member of the EU for free access. On the other hand, Tusk characterizes British desires and trying to blend the Canadian position, which only has a free trade agreement, with full access like Norway but pays no dues like Canada. Meanwhile, France is taking the position that they want to fill the shoes of the London financial markets who have never been able to create deep markets.
This hardline position against the financial markets of Britain remaining as the core trading center for the Euro is extremely dangerous. The Euro holds a minimal position among the reserves of central banks. The exact composition of the foreign-exchange reserves of China is a state secret. Nevertheless, based upon reliable sources, about two-thirds of Chinese foreign-exchange reserves are held in U.S. Dollars. The rest is composed of Japanese Yen, British pounds with less than 15% residing in Euros.
Brussels is far more interested in punishing Britain than in securing a strong and viable market for the Euro. With respect to a banking center, the primary competitors running second and third are Switzerland and Luxembourg. Never the less, France and Luxembourg are seeking to gain from blocking Britain as they seek to strengthen their positions against Britain. Luxembourg has the EU President Jean-Claude Juncker in their corner, who traditionally has a good relationship with the banks in his home country of Luxembourg. Ironically, while Germany is the largest economy within the Eurozone, by contrast, it relies heavily on trade in goods and financing rather than banking. We have a conflict of interests here where Germany actually need the free market in London for trade deals whereas France and Luxembourg are more interested in capturing business from Britain.
Meanwhile, Brussels needs control so they can maintain the outlawing of shorting government bonds and make no mistake about it, they will prohibit shorting the Euro when it goes against them as well. The danger of politics making the decision over such an issue is that any free market in the Euro will suffer. This is becoming a high stakes financial poker game. Even the President of the Swiss bank UBS, Axel Weber, has come out warning against a withdrawal of the euro clearing from London. “We have to be very careful that we do not shoot any own goals on the subject of Brexit.”
If the EU blocks Britain from euro clearing, this will be the end of the Euro. Politics will present far too great a risk for the Euro to survive going forward.