Wolf
Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
Boeing
has squirrelled away more orders in the first quarter than archrival
Airbus, which has been plagued by delays of its A350 and by lousy
sales of its super-jumbo A380, and by a million other problems. So on
the eve of the ILA Berlin Air Show, Airbus CEO Fabrice Brégier spoke
up against this ridiculous injustice. And true to his Frenchness, he
exhorted the ECB to get busy and do what central banks
are supposed to
do and devalue the euro. It would help exports, and particularly
Airbus’ exports.
Devaluing the currency was France’s standard
go-to solution back when the franc still existed. So, for example,
after a series of devaluations since 1945, France “revalued” the
franc in 1960 at 100 old francs to 1 new franc. Three zeroes were
chopped off, new notes and coins with confidence-inspiring designs
were put into circulation, and then the dance started all over again.
Over the next 40 years, until it was replaced by the euro, the
“revalued” franc lost another 88% of its value. In the process,
France continued to lag behind Germany as an industrial power, and
Germany had a hard currency. That’s French monetary policy if left
to its own devices.
The
ECB “has to gain credibility” on how it manages the currency,
Brégier said, according to the Wall
Street Journal,
perhaps reminiscing fondly about the good old days of the franc and
its serial destructor, the Bank of France. He fingered the US and
Japan whose central banks have been printing money hand over fist.
Neither central bank has put currency devaluation on its public list
of things to accomplish. But that has been the result, with the
dollar and the yen chasing each other to the bottom. Regular
Americans and Japanese have been paying the price for the devaluation
of their currencies, but that didn’t come up in Brégier’s
speech. It doesn’t matter. It never comes up. It’s a taboo topic.
Currency devaluation and inflation are laudable goals to be
accomplished quietly and without ruffling the feathers of their
victims.
He considered the strong euro in relationship
to the dollar one of the principal threats to Airbus and lamented
that the ECB’s suggestions of negative deposit rates haven’t
produced any results yet. “Europe politically has to do what it
costs to make it happen,” he said because his bonus might be at
stake.
But
a couple of days before he opened his mouth in Berlin, Natixis, the
asset management and investment banking division of France’s second
largest megabank, Groupe BPCE, preemptively issued a new
report in
his native tongue to prove him wrong.
In
fact, since the beginning of the debt crisis, the Eurozone has had a
growing current account surplus.
And ironically, despite Brégier’s protestations, the stronger the
euro, the greater the surplus:
Natixis found that these current account
surpluses have contributed to the strong euro, along with foreign
investors who have been plowing the Fed’s and the Bank of Japan’s
freshly printed money into European financial assets, thus inflating
their values. And the study concluded what everybody can see by just
looking at the numbers: the appreciation of the euro has not reduced
the current account surpluses.
But there were differences between countries.
Natixis found that exports by Germany (and countries like it) are not
sensitive to the euro’s exchange rate due to their level of
differentiation and sophistication.
Exports
by other countries, however, are sensitive
to the euro’s exchange rate, but some of them, like Spain and
Portugal, are benefitting from their growing cost-competitiveness –
low salaries, in normal English – and have seen strong export
growth. Other countries, such as Italy, are at the limit of their
external debt, and current account deficits cannot increase. So if
the strong euro hurts their exports, domestic demand for imports must
contract to prevent external deficits from reappearing.
France, the report points out, has a
competitiveness problem (cost of labor has continued to rise in
relationship to the lagging sophistication of production) and a
profitability problem, which cause not only the weakness in exports
but also the weakness in investments. And that’s not the fault of
the euro or of the half-heartedness with which the ECB has been
fighting the currency war, Mr. Brégier, but of the policies in
France, the report almost added.
So
when Brégier claims that devaluing the euro “is the condition of
additional industrial development in the Eurozone and so additional
exports,” he is firing a gratuitous shot in the currency war to
push the ECB in that direction. Devaluing the euro would boost the
paper profitability of Airbus as its dollar sales are translated into
weakened euros, and therefore more euros. It would alleviate some
corporate problems and raise his bonus payable in these devalued
euros. But there are people who will pay the price, and as Natixis
pointed out, it’s not a
“condition of additional industrial development.” That shot went
into his own foot.
Devaluation would allow France to paper over
its economic and tax policy issues. But in the end, it would have to
lumber, as in the past, from one devaluation to the next and destroy
savings and wages in an insidiously sly manner, in the same sly
manner actually in which the Fed has been destroying savings and
wages of Americans for years. But Brégier should keep in mind that
the one thing the dollar devaluation was supposed to accomplish –
eliminate the huge trade deficit – is precisely what it has failed
to accomplish.
A
different battle between the US and France has been brewing for
months, but now it came to a head: the French government decided to
spite the US and move forward with the contract to deliver two
warships to Russia. To heck with those silly sanctions. Read….France
Thumbs Nose at Obama Over Sanctions: Will Deliver Two Warships
to Russia
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