Saturday, March 02, 2002

Laissez les bon temps roulez

Looking through those old articles that I've stuffed away to read later, I come across an Economist article marvelling at the inexplicable weakness of the Euro. All possible explanations don't add up they puzzle. What about this one:

That France had been systematically printing more Francs than she was allowed to under the interim arrangements for the Euro. As there was a fixed exchange rate these Francs effectively became Euros, so the effects of a weakened currency could effectively be pooled with other countries, while the Francs would largely fuel prosperity in La France.

Of course this is totally implausible. Consider, the governor of the Banque de France, Trichet, wants to run the European Central Bank. What possible motive could he have for forcing the resignation of the present incumbent (who was under a sort-of obligation to resign after four years of appointment)? Sadly, Mr Trichet is at the moment helping police with their enquiries, on a fraud case, so he will be temporarily unavailable to fill the post of ECB governor that fell vacant due to the resignation of Wim Duisenberg partly because of the lack of confidence of the international markets.

And the French government, what possible motivation could they have for printing money? After all, their increasing regulation of the labour market - with the shortening working week the most obvious example - was bound to pick their economy up. And if you discount any possibility of a slowly inflating monetary supply, this would seem to be the only explanation of the slowly declining unnemployment. French unemployment has suffered a slight up tick in December, but that has nothing to do with the demise of the French control of the printing press, surely.

Of course this would explain the otherwise inexplicable constant fall in value of the Euro, more Euros were being produced, but it goes against one concrete pillar of European politics - that the French will never act in their own national interests if this means that they will inconvenience their partners. So that theory goes out of the window. I'm almost embarased that I was putting forward this theory two years ago.


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