There would therefore be that yet another complaint against the "strong euro" as all French leaders have done since the introduction of the single currency and regardless of the level of the common currency. But such an analysis will not take into account the specificity of speech FranÃ§ois Hollande who has not lamented the exchange rate and has not increased demand action from the ECB, but asked exchange policy for sustainable euro have a "stable", the value "reflects the real economy" and no longer "subject to the vagaries of the market." So this is much more than the current level of the euro is at stake: it is a real alternative to the current management of the euro. But management is realistic?
Before discussing, it should be recalled based on theoretical foundations which the current management of the euro. The ECB has, as we know, only one goal: "to ensure price stability in the medium and long term. "As often reminded Jean-Claude Trichet, this is" the only compass needle "of the institution in Frankfurt. Obviously, the evolution of the euro is not neutral in this goal, but it is only one element. And it is precisely monetary policy, ensuring price stability, can "anchor" a proper exchange rate. Current doctrine, without denying that there may be market distortions, therefore believes that the euro can not "evolve whim of the markets" as claimed by FranÃ§ois Hollande. Instead, the market price is a reliable indicator for judging the appropriateness of monetary policy.
The proposal of FranÃ§ois Hollande is truly revolutionary. It implies that the market is a poor indicator of the relative value of the euro and the need to introduce a correction externally. Why? Because the criterion of the value of the currency should not be for FranÃ§ois Hollande, price stability, as indicated by the Maastricht Treaty, but competitiveness and thus growth and employment. This is the meaning of his words when he speaks of the value of money "in line with the real economy."
French President reintroduced by a debate between the comparative advantages of fixed exchange rates and floating that has long agitated economists in the late 1960s and early 1970s. The Swiss daily Tagesanzeiger, recently recalled that the debate was very lively in Switzerland before the decision on 24 January 1973 to float the Swiss franc and to abandon the fixed exchange rate. The American economist Milton Friedman, founder of the monetarist school was in 1969, defended the principle of floating currencies, reversing the opinion that so far kept this principle the sad examples of crises of 1848, the First World War and the Great Depression of the 1930s. But it is obviously Richard Nixon, August 15, 1971, gave the advantage to the principle of floating currency by raising the link between the dollar and gold. We remember, however, that it is to defend its economy against inflation that Germany, in March 1971, abandoned the system. Therefore, attracted by the German rate and the "stability" of its currency, investors sold dollars to buy their massively mark. Before the collapse of the U.S. gold reserves, Nixon then decided to let the dollar float and stop "temporarily" gold convertibility. We thus see how the Germans can be attached to a floating exchange rate. . .
However, we can certainly judge that Francois Hollande has exaggerated his remarks exceeded his mind and plead for more exchange rate "mastered" as have the countries of the European mechanism of exchange rates (ERM-II) the antechamber of the euro, or Switzerland, which set a floor for the parity of the Swiss franc against the euro. But if we examine how this policy, we must recognize that the proposal of FranÃ§ois Hollande is quite unrealistic and contradictory.
The first solution to "stabilize" its currency, the exchange control which allows to control the flow of currency into and out of the currency area and thus influence the course of the euro. This method preserves, at least in appearance, the independence of the central bank. It is used today by the Chinese government, despite the greater flexibility of the yuan against a "basket of currencies". This method does not seem appropriate, however, to the euro area. It is indeed quite daunting for international investors and trade. The rest is for this reason that the current Minister of Foreign Affairs of FranÃ§ois Hollande, Laurent Fabius, who was at his side on Tuesday in Strasbourg, was discontinued in 1985 when he was prime minister. If China can still afford it, it is because it has a competitive advantage in terms of cost that can offset the negative effects of exchange controls and attract capital. The eurozone does not have this lever and European countries very open to the outside refuse this type of practice.
The only solution would be to compel the ECB to intervene or to establish a minimum and maximum for the euro. But we must change its constitution and, as we have seen, his logic. It would also say goodbye to his independence. Note that in the case of Switzerland, as in the case of Japan, central banks do not have the same objectives as the ECB. The Swiss National Bank is required by section 99 of the Federal Constitution, "to serve the interests of the country", which is not all to do the same mission that strict price stability. As the Bank of Japan, it is still closely linked to the government. Recent events have once again proven. However, Germany and the north of the eurozone will never accept that the ECB serve interests other than the "price stability."
Then one last lever: the international agreement. While the world seems to engage in a currency war, this is more of a dream than realism. Of course, this could work once, in 1984, at the Plaza Accords that brought down the dollar in a concerted manner. But again, the collaboration of central banks was required and this policy has had a major setback: the 1987 stock market crash, the bursting of the bubble caused by the falling dollar and the housing crisis in Japan, the country still suffers, and which was caused by the cash flow to Japan dollar sellers. Since any attempt to "global monetary system" has failed. Nicolas Sarkozy, who had made a priority during the presidency of the G-20 there has been a bitter defeat.
And if at the European level, it is possible in the ERM-II control the exchange rate, it is because central banks Latvian, Lithuanian and Danish sole objective the exchange rate of their currencies with the euro. They therefore any latitude to influence the course of their currencies. But if one wants to apply this system to a euro-dollar rate, the ECB will lose monetary sovereignty. It must, to prevent the variation of the euro against the dollar, to determine its monetary policy in response to the Fed, as the Danish central bank does whenever the ECB changed its rates. The euro will become a currency of dollar vassal, that probably does not want anyone in Europe. Especially that U.S. monetary policy is probably not driven by European economic interests.
Finally, FranÃ§ois Hollande will implement the project because the eurozone has no common interest in the exchange rate of the euro. According to national economies, rates "ideals" of the euro are very different, as shown by a recent Ã©tudede Deutsche Bank. As a result, discussions on setting the rate at which the euro must remain attached may be very harsh. And if we take an average weight of Germany and its allies is such in the economy of the euro area, the rate chosen may displease many, including Paris and Rome.
It must therefore be recognized: the proposal of FranÃ§ois Hollande did not make much sense. It is a nostalgia for the gold standard and germinal franc is no longer relevant today, but it is mostly entirely inconsistent with maintaining the independence of the central bank. In short, the French president is first delivered to a communication company to appear before the summit on Thursday and Friday "champion of federalism."