Tuesday Morning, June 17, 2008
Shocks to the Euro fail to provide any heavy downside action.
This morning the ZEW report came in signficantly weaker than expected, falling to -52.4 from -41.4 in May. The consensus expectation was for a slight fall to -42.0. And then there was the Irish no vote on Lisbon EC treaty. The Euro suffered a bout of sell on the rumour last weej, buy on the fact this week. Since then it has been strenghtening. An article in the NYT deals with the view that there is increasing sentiment that European monetary union does not depend on the greater political union the treaty provides. It seems the majority of Europeans might favor this state of affairs. But is it workable in the long term.
From the NY Times:
"...these deepening differences within Europe could still pose a long-term threat to the euro, said Paul De Grauwe, a Belgian specialist on the currency.
“In the very long run, a monetary union must be embedded in a political union,” said Mr. De Grauwe, a professor of economics at the Catholic University of Leuven. “Sometimes there are shocks that are so strong that without a close political union, it can lead to a breakup.”
And Gideon Rachman in the FT explains how the treaty might mean less democracy not more democracy in the EC.
Also from the FT: Some Fed officials sending warning that markets are "getting carried away" with their expectation of rate hikes any time soon. "They do not dispute that the next move in US interest rates is very likely to be up. But they feel the market may be pricing in too much tightening too soon."