The Other McCain

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European Economic Crisis?

Posted on | January 20, 2015 | 51 Comments

There is a lot of very important news out there today, but perhaps nothing is really more important than this:

The completely unexpected decision of the Swiss National Bank (SNB) to remove the 1.20 floor on the Swiss franc against the euro [last week] was one of the biggest currency shocks since the collapse of the Bretton Woods system in 1971.

Then yesterday, the Danish central bank “cut its interest rates to dampen investor interest in the Danish krone ahead of a closely watched European Central Bank meeting Thursday.” The Wall Street Journal quotes an analyst’s opinion:

“This is all part of the currency war in which the ECB has become a big player last week. The weakness of the euro became too much for them. On the back of the SNB move, there was speculation that the eurodenmark peg could come under speculative pressure. Obvious difference is that Denmark does not have to cope with safe-haven flows, like the SNB does. There is not the same degree of pressure than on Swiss. Another difference is that the krone is not overvalued by many measures.”

Honestly, my knowledge of the situation is too meager to be able to say what this means, but it is possible — I emphasize, merely possible — that this is one of those signs of an impending economic crisis. The underperforming European economies (PIGS = Portugal, Italy, Greece and Spain) have been a drag on the Euro for several years, dependent on the ability of the stronger economies (especially Germany) to patch up the related currency problems. But these were always patchwork fixes, and the underlying problems are too deep to be permanently fixed, no matter how much cash the Germans could provide, no matter how strict the austerity measures imposed on the fiscally disastrous Mediterranean governments.

Maybe the ECB will be able to find another patch, but if the Swiss and Danes are hedging their bets . . .? I don’t know what this means, but if I were a major investor, I might be worried. Any readers with extensive knowledge of the European financial situation are invited to offer their analysis in the comments.

(via Memeorandum.)



51 Responses to “European Economic Crisis?”

  1. Matt_SE
    January 21st, 2015 @ 11:36 pm

    Always two ways to interpret that: either CHF is getting stronger, or EUR is getting weaker.