Global currency wars and the Eurozone; A Greek ‘glimpse' on the crisis issue

Let’s start from the basics. There are no bombs exploding; guns shooting can only be found in TV series and we do not mourn any victims; sirens are silent. Yet, despite the fact that no physical war takes place among western, developed countries, still there is an invisible, vast conflict of central banks and governments, the ‘notorious’ global currency war.

Although this war does not take place at a physical battle area, involves all the countries of the world. Although, one can hardly find dead people, hostages and wounded soldiers at hospitals, still the currency war dramatically affects the everyday lives of people. The history of currency wars have several historical precedents. In the aftermath of a major crisis, and while the global economy is more or less crumbled, central banks try to stimulate domestic exports, underestimating in various ways their currencies. Obviously, when a state resorts to an artificial devaluation of its currency, it just paves the way for the remaining states having such an opportunity to follow the same strategy. This leads to what is called monetary nationalism. Mr Putin, president of Russia, in a TV interview a couple of years ago blaming US monetary policies, characterized monetary nationalism, as the new‘ monetary hooliganism’.

While people, even those professionally engaged with the finance world, consider that currency wars as a ‘new’ part of our lives, the truth is different. Currency wars are enormous, and for the two previous ones, it took the signing of international peace treaties to end. Briefly, the first major currency war ended in 1936 when England, France and the U.S. were forced to sign a three-day agreement to handle monetary imbalances caused by the withdrawal of the British and the Americans, from the ‘golden standard rule’, as a result of the recession. The second one, ended in 1985 with the Plaza agreement, an agreement that Great Britain, France, USA, Germany and Japan signed, as well. The goal was the devaluation of the American dollar against the yen and German mark respectively, in order to help the U.S. getting out of the recession that had fallen through the beginning of the 80’s.

Since the 2008 crisis we have been amidst a third global currency war. Many economists, professors in ‘top-tier’, leading business schools, sociologists and politicians, assume that this war halted a real third world war, therefore it was a ‘blessing in disguise’. The Fed as a very quick, experienced and most of all, independent reserve bank, started as soon as possible a series of quantitative easing programmes. Obviously, the Fed did not act that way just to save its currency, by simply weakening the American dollar, i.e. making the US goods cheaper to acquire. As we now realize, in opposition to other central banks and mainly the ECB, the Fed did that, to save US economy. On the other hand, the other world banks didn’t initially follow Fed actions. Their politicians, economical leaders might correctly considered, that ‘as long as Fed supports US economy, global economy would be supported as well’. In plain English, as long as European politicians were feeling secure enough, by the manipulation of bonds and equity markets in euro land, things were in compliance with the motto ‘as long as Fed printer makes money, global growth is well supported’.

When the global economy got back again in a sluggish track, with emerging countries started bleeding, Fed’s started to think of the renowned ‘tapering’.. Therefore, while US stacked first at the recession position, is looming out as well of it, first of all. Now in Japan, with ‘Abenomics’, we enter a new phase of the currency war. Japan weakens the yen, to boost its exports in a way to suppress the chronic- deflation, while India wants to save the Rupee. Indian exporters worry because competing countries are getting cheaper as their currencies tumble faster. For instance, Indonesia and South Africa, compete respectively India in global textiles, agricultural products, chemicals, electronics and engineering goods. However, South African Rand (ZAR) has fallen 15.78% year-to-date against the American dollar. This raises the interest of the RBI (Reserve Bank of India), which is in on the same track...

Getting back to the Euro zone and Greece, German elections day is looming, ahead of new fears and promises about a new Greek bail out. My personal point of view is that it would be smarter to consider the situation in a wider aspect of the currency war, as ‘depicted’ above. Greek GDP shrank by 5% in 2010, by almost 7% in 2011, by 6.5% in 2012, and it is expected to shrink by an additional 5% by the end of 2013. Inequality and poverty have skyrocketed in Greece, while suicides have soared across the country. Greece turns now to be in the leading position in suicides across euro zone. Surely, Europe will not work for Greece, but neither Europe should be in any case a German’s proxy. Our German friends, should finally understand that the initial dream of Euro zone was the creation of the United States of Europe. They surely have the knowledge, the expertise and the strength. But the power-horse of Euro zone, lacks of flexibility, bringing rigidness throughout Euro land.

Within the US, several states face debt problems of the same magnitude as Greece, but these are not in any case being viewed as threats to the dollar currency area. Indeed, Greek politicians made their best efforts since 1974, to transform Greece from ‘Cradle of Democracy’ to ‘Cradle of Kleptocracy’. Their ‘friends’, a very small portion of Greek society of high connections, did nothing but squandering public money. Hard earned money of Greek taxpayers were blown out in the wind by politicians and their good ‘friends’.

What we could as Greek do now and what would be the ideal stance of Euro zone, and in particular of Germany? I consider that Greece should proceed to the necessary fiscal reforms, in order to strengthen the private sector. Greeks have not only realized the parasitic existence of ‘small portions of the above described groups; but also have been fed up with their arrogance. Greek citizens want the change, but they also need assistance. What kind of? It’s not an advanced mysterious strategy taught in prestigious, high-class US business school classes. It is just the implementation of a federal union. Greece's finance minister Yannis Stournaras said on Friday that the ‘solution should be a common debt market’. We also need entrepreneurship by offering appropriate liquidity to the bank system and the necessary development funds. Of course Germany as the power-horse of Euro zone has every right to decide on its own; but if our German friends should forget entirely the rest of Europe within the stubbornness and arrogance of the ‘stronger’, they run the risk of taking the bullets in the currency war.

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.