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Finance and Money: Hectic Week

  • May 20th, 2010
  • Posted by 7thmin

eurosymbol-frankfurt.jpgCOMMENTARY: European Union Finance Ministers  this week came up with regulatory measures meant to  damp down speculative pressure on financial markets, while stock prices and the Euro currency began to slip.

KEEPING WATCH AT BRUSSELS

The sixteen  Ministers from the Eurozone countries, then all 27, at Brussels (18.5.10), endorsed new controls on operators of hedge funds, imposing a transparency regime on their operations, demanding that these often obscure identities become registered, with remuneration rules for managers.

A new European law, a Directive, is being worked out between the Ministers and the European Parliament.

Hedge funds generally are investment funds open mostly to a limited selection of professional investors, with operations exemption from many regulations; following a wide range of trading activities that can include short selling; prone to follow high-risk / high-return strategies, (see Wikipedia,  http://en.wikipedia.org/wiki/Hedge_fund – 20.5.10).

An estimated 80% of holdings of these funds in Europe are controlled from London, and the new Conservative British government is understood to have argued against the control measure, sympathising also with American objections to an aspect of it – that restricting certain investment activity outside of the EU would be against free trade.

NAY-SAYERS, NUTTERS AND NEGOTIATORS
The Prime Minister, David Cameron, with a strong lobby of Europhobes or “Eurosceptics” in his Party, had his Foreign Minister William Hague on a visit to Washington two days after accession to office.

In the current crisis the Prime Minister has this week focused on the EU, venturing onto the European continent, to confer with the French President, Nicolas Sarkozy, in Paris on Thursday (20.5.10), and the German Chancellor, Angela Merkel, in Berlin today (21.5.10).

(More spontaneously Europhile in approach was the Deputy Prime Minister, Liberal-Democrat Nick Clegg, who’d been a short while before telling television viewers,24.4.10, about cranks in the anti-EU ranks: “nutters, anti-semites, people who deny climate change, homophobes…”, he thought).

A further incident over regulatory moves developed on Wednesday (19.5.10) when the German government imposed constraints on trading normally reserved for a recessionary crisis – notably prohibition of “naked short selling”, (where traders bet on securities they don’t yet actually hold).

CROSSROADS IN EUROPE?

The German Chancellor generated some tension within the European partnership when she told an international economics congress in Berlin (20.5.10) Europe was facing its stiffest test in fifty years.

Informed opinion does show some consensus around the view that a choice has arrived: enforce fiscal and other commitments that come with being in the Eurozone (just as Merkel insists that Greece should have done, and must do from now on), so as to hold the group together; or see it fragmented.

Pressure has continued this week on share prices and the Euro on European markets, though there was some easing  on Thursday with a price recovery in several financial stocks and the currency improving on earlier lows against the US dollar.

AUSTRALIAN END

At the Australian end of the global markets similar falls continued, in shares and the Australian dollar, reflecting fears that the trouble in Europe would hobble global recovery from recession; with impacts on commodity prices crucial to the trade-based economy.

“The Australian dollar fell Thursday to an eight-month low against its U.S. counterpart as global investors continue to spurn risk …”, said the Wall Street Journal.

“At its lowest Thursday, the Australian dollar was down 11% from its level of May 3 due to weaker commodity prices, continued risk aversion and an unwind of interest-rate hike bets.”

Australian dollar rates: $US 82.93 cents;  €67 Euro-cents; Pound Sterling 57.7 pence; (dcerates. com, 20.5.10).

Reference

James Glynn and Edna Curran (Sydney),  “Australian Dollar Hits Eight-Month Low”, Wall Street Journal, NY, 20.5.10. http://online.wsj.com/article/…, (20.5.10).

Oana Lungescu, “Germany’s Merkel hosts key finance regulation summit”, BBC News, London, 20.5.10. http://news.bbc.co.uk/2/hi/world/europe/10129594.stm, (20.5.10).

Michele Maatouk (Dow Jones, London), “Global Markets: European Stocks Higher; Euro Steadies”, Wall Street Journal, NY, 20.5.10.  http://online.wsj.com/article/BT-CO-20100520-704013.html?mod=rss_Bonds, (20.5.10).

James Robbins (Diplomatic Correspondent, Washington), “Early Harmony in UK-US Relations”, BBC News, London, 14.5.10. http://news.bbc.co.uk/…, (21.5.10).