PARIS — The euro was a political project meant to unite Europe after the Soviet collapse in a sphere of collective prosperity that would lead to greater federalism. Instead, the euro seems to be pulling Europe apart.
As European leaders scramble to present a united front for this weekend’s critical meeting in Brussels, anxiety in Europe is growing, and not just about the euro. The assumptions of 60 years suddenly seem hollow, and the road ahead is unclear, as if the GPS system has gone out of whack.
On the surface, the European Union is an enormous success. It has nearly 500 million citizens and a gross domestic product of more than $17 trillion, larger than that of the United States and more than three times China’s or Japan’s. It is America’s largest trading partner by far, and together the two economies account for roughly half the world’s gross domestic product and nearly a third of its trade.
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Oct. 19 (Bloomberg) -- Citigroup Inc. is purchasing higher-yielding currencies before a resolution to the European debt crisis, citing a long-term lack of dollar demand.
The U.S. currency’s rally in September was driven by the safety appeal of Treasuries rather than other U.S. assets, signaling an inherent weakness in the greenback, according to Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York.
Treasury Department data released yesterday show foreign private investors bought $70.1 billion of U.S. notes and bonds in August, compared with purchases of $1.9 billion of corporate bonds and $9.9 billion of agency bonds. They sold $6.6 billion of equities. They sought refuge in Treasuries during the financial turmoil that followed the Aug. 5 downgrade of U.S. debt by Standard & Poor’s.
“Investors aren’t buying the dollar because they like it, but because in the worst of all worlds it remains the safest asset, and once you exit from that world it’s the least attractive,” Englander said in an interview. “We’ve positioned ourselves to buy risk in the view that the small G-10 currencies are going to rebound strongly once we get past this episode.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 6.3 percent in September, the most since October 2008. The gauge has lost 2.1 percent this month.
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Slovakia on Thursday became the final country to ratify the expansion of a European rescue fund, giving the bloc a critical tool to address the sovereign debt crisis and bolster the euro, but one few expect will solve Europe’s debt problems.
Internal domestic tensions in Slovakia, one of Europe’s smallest economies, had delayed the measure, which required the approval of all 17 European Union countries that use the euro. A similar vote in the Slovak Parliament failed Tuesday night, bringing down the government after one of the four parties in the governing coalition refused to support the deal.
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Yesterday, Slovakia rejected a planned Euro bailout. Now it looks like they changed their minds.
Slovakia will approve Europe’s enhanced bailout fund today or tomorrow, completing the ratification process across the 17 euro countries as the region’s leaders prepare for a summit this month.
Party leaders in Bratislava yesterday secured backing for the European Financial Stability Facility in a second vote, Robert Fico, head of the largest opposition party Smer, said. Prime Minister Iveta Radicova’s SDKU party in exchange agreed to back early elections to be held on March 10.
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Europe’s efforts to stem the sovereign debt crisis suffered an embarrassing and potentially costly setback on Tuesday night when Slovakia’s Parliament failed to approve the expansion of the euro rescue fund, a development that brought down the government.
Prime Minister Iveta Radicova announced that with 55 lawmakers voting for the measure, 9 against it and 60 abstaining, the Slovak governing coalition failed to muster the necessary votes to pass the plan that would have required Slovakia to contribute roughly $10 billion in debt guarantees.
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