Euro tumbles – by John Redwood

Yesterday was another bad day on the markets for the Euro. The European Central Bank withdrew longer term facilities from European banks, and triggered fears in the markets. The currency slid further.

The ill judged Euro experiment is doing considerable damage to Euroland economies. The southern states need to cut their wages substantially to compete with Germany and the Northern countries. They are being forced to cut public spending, whilst lacking the tools to generate a strong enough private sector led recovery to compensate. Shorn of the ability to devalue to sort out their relative cost base, the actions they have to take are deflationary. Unemployment is already very high.

When Germany adds her own belt tightening and the ECB seeks to take away liquidity it adds up to a bad prospect. The Eurozone needs more growth, but faces more obstacles to growth. Meanwhile the European politicians think it all needs another large dose of financial regulation to put it right!

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