Monday June 20, 2005 - 10:38:57 GMT
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Euro: No Worse for the Wear
Although news of the disastrous EU budget meeting created a gap down open in EUR/USD during the Asian session, the move below 1.2200 quickly found buyers in a further sign that the relentless selling of the euro may be finished for now. Although last Friday’s meeting ended without an agreement, the dispute may be a blessing in disguise as it finally brought to the forefront the structural differences between key EU members and sparked the much needed debate about the future direction of the economic union. At the core of the battle was the conflict between Tony Blair and Jacques Chirac about agricultural subsidies to European farmers which comprise only 5% of the workforce yet consume 7 times more expenditures than the EU budget for research and development.
Although, Mr. Chirac tried to paint Mr. Blair as the obstructionist villain of the summit, he returned home not to a hero’s welcome but to derision and jeers from the French press with one French paper even calling Mr. Blair, “The First Emperor of Europe”. According to sources quoted by Le Figaro, the two men “detest each other”. Yet they will have to find a way work productively with each other when Mr. Blair assumes the Presidency of the European Union in July. The most important item on the agenda will be the passage of the European services directive. This legislation removes many barriers to trade in services between the EU member states and if Mr. Blair can successfully shepherd it through the EU parliament it will provide a tremendous productivity boost to the region.
At first glance, it appears that out of the ashes of the failed EU summit a new consensus is emerging that European economy can no longer operate under the strict bureaucratic rules of the past. Mr. Blair’ s “Angle-Saxon” vision of a less regulated marketplace may be winning more adherents. In the meantime, the lower euro is already achieving what all the politicians could not – better growth as Italian Industrial Orders rose 1.5% versus 0.5% expected.
FX Spot Overnight
- EUR ranges between 2200-2230 after the failed EU summit
- JPY at 108.80 in very quiet trade
- GBP at 8266 steady off better Public Finance data
- CHF at 2640 shadowing euro
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