Author Topic: 1 trillion euro rescue plan to revive euro  (Read 900 times)

Offline thaiga

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1 trillion euro rescue plan to revive euro
« on: January 23, 2015, 02:49:50 PM »
Todays bangkok bank buying  rates euro 36.47. That's bad news and is effecting a lot of expats, lets hope it improves.

ECB launches 1 trillion euro rescue plan to revive euro economy

(Reuters) - The European Central Bank took the ultimate policy leap on Thursday, launching a government bond-buying program which will pump hundreds of billions in new money into a sagging euro zone economy.

The ECB said it would purchase sovereign debt from this March until the end of September 2016, despite opposition from Germany's Bundesbank and concerns in Berlin that it could allow spendthrift countries to slacken economic reforms.

Together with existing schemes to buy private debt and funnel hundreds of billions of euros in cheap loans to banks, the new quantitative easing program will release 60 billion euros ($68 billion) a month into the economy, ECB President Mario Draghi said.

By September next year, more than 1 trillion euros will have been created under quantitative easing, the ECB's last remaining major policy option for reviving economic growth and warding off deflation. The flood of money impressed markets: the euro fell more than two U.S. cents to $1.14108 on the announcement, and European shares hit seven-year highs.

"All eyes were on Mario Draghi and he has delivered a bigger bazooka than investors were expecting," said Mauro Vittorangeli, a fixed income specialist at Allianz Global Investors, adding that the news marked "an historic crossroads for European markets".

The ECB and the central banks of euro zone countries will buy up bonds in proportion to its "capital key", meaning more debt will be scooped up from the biggest economies such as Germany than from small member states such as Ireland.

The prospect of dramatic ECB action had already prompted the Swiss central bank to abandon its cap on the franc against the euro. Denmark cut its main policy interest rate on Thursday for the second time this week after the ECB announcement, aiming to defend the Danish crown's peg to the euro.

Draghi has had to balance the need for action to lift the euro zone economy out of its torpor against German concerns about risk-sharing and that it might be left to foot the bill.


Economists noted that Draghi had said only 20 percent of purchases would be the responsibility of the ECB. This means the bulk of any potential losses, should a euro zone government default on its debt, would fall on national central banks.

Critics say this casts doubt over the unity of the euro zone and its principle of solidarity, and countries with already high debts could find themselves in yet deeper water.

"It is counterproductive to shift the risks of monetary policy to the national central banks," said former ECB policymaker Athanasios Orphanides. "It does not promote a single monetary policy. This path toward Balkanisation of monetary policy would signal that the ECB is preparing for a break-up of the euro."

A German lawyer who has been prominent in attempts to halt euro zone bailouts said he was already preparing a legal complaint against the bond-buying program.

Draghi said the ECB's Governing Council had been unanimous in agreeing that the step to print money was legally sound. There was a large majority on the need to trigger it now, "so large that we didn't need to take a vote".

"There was a consensus on risk-sharing set at 20 percent and 80 percent on a no-risk-sharing basis," he added.

One euro zone central banking source said five policymakers opposed the expanded asset-purchase plan: the central bank chiefs of Germany, the Netherlands, Austria and Estonia, along with Executive Board member Sabine Lautenschlaeger, a German.

Guntram Wolff, head of the Bruegel think tank, said the plan's size was impressive. "But the ECB has given the signal ... that its monetary policy is not a single one. That's a bad signal to markets and a bad signal to everybody in the euro zone."

The ECB is trying to push euro zone annual inflation back up to its target of just below two percent; consumer prices fell last month, raising fears of a Japanese-style deflationary spiral. But there are doubts, and not only in Germany, over whether printing fresh money will work.

Most euro zone government bond yields are at ultra-low levels and the euro had already dropped sharply against the dollar. Lower borrowing costs and a weaker currency could both help to boost economic growth but there is a question about how much further either can fall.

The ECB could create the basis for growth, Draghi said, but he put the onus on governments to follow. "For growth to pick up ... you need structural reforms," he said. "It's now up to the governments to implement these structural reforms. The more they do, the more effective will be our monetary policy."

Draghi was echoing the view of German Chancellor Angela Merkel, who said: "Regardless of what the ECB does, it should not obscure the fact that the real growth impulses must come from conditions set by the politicians."

The ECB has already cut interest rates to record lows and left its refinancing rate, which determines the cost of euro zone credit, at 0.05 percent.

Greece and Cyprus, which remain under EU/IMF bailout programs, will be eligible for the ECB program but subject to stricter conditions.

In practice, Greek debt does not currently qualify as another rule stipulates that a maximum 33 percent of the bonds issued by any country may be bought. The ECB and other euro zone central banks already own more than this, although they may start purchases once enough of their Greek bonds have matured to take the total below the 33 percent threshold.

Greece votes on Sunday in an election where anti-bailout opposition party Syriza is on track to emerge as the biggest party in parliament.

(Writing by Mike Peacock and Paul Carrel. Additional reporting by Noah Barkin in Davos. Editing by Jeremy Gaunt and David Stamp)
Anyone who goes to a psychiatrist should have his head examined.

Offline thaiga

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Re: 1 trillion euro rescue plan to revive euro
« Reply #1 on: January 24, 2015, 01:26:49 PM »
Euro plunges, but European brands are not on sale in US

NEW YORK (AP) — Americans hoping to save on European goods thanks to a falling euro shouldn't rush to uncork that bottle of French Bordeaux. There's very little to celebrate.

Not since September 2003 has the euro traded this low against the dollar. Still, German sports cars, Belgian beers and the latest fashions out of Italy aren't going on sale anytime soon. The reason? There's simply too much demand in the U.S. for any markdowns.

"The U.S. economy is the one that's doing well in the world right now," notes IHS senior principal economist George Magliano. "We've got a lot of growth in upper-income families and households."

Since Americans are willing — and able — to spend heavily on imported goods, there's no need for companies to cut prices. Any savings thanks to the euro's decline will instead be pocketed by manufacturers and distributors.

It's been a dramatic fall for the euro. Back in April, the European currency was trading at 1.38 dollars to the euro. That means that one dollar bought you about 72 euro cents.

Now the exchange rate is hovering around 1.13 dollars to the euro, so one dollar buys you 88 euro cents. The euro extended its slide against the dollar on Thursday, dropping more than 2 percent against the U.S. dollar, after the European Central Bank pledged to spend 1.1 trillion euros on bond purchases to help revive the region's flagging economy.

The problem for Americans: we don't buy enough European goods, except for high-end products. Our clothes might come from Bangladesh or Costa Rica. Our furniture from China. And our cars — even foreign brands like Honda — are mostly made at home.

European brands tend to cater to higher income families who want to buy a bit of prestige.

Take German cars. Brands like Audi, BMW and Mercedes are luxury products with strong demand. So there's no incentive to cut prices, says Karl Brauer, senior industry analyst for Kelley Blue Book.

Audi sales rose 15 percent last year, while BMW sales were up 6.5 percent and Mercedes rose nearly 10 percent. Each company is likely to pocket the extra money from converting dollars to euros, no matter whether the cars are made overseas or in the U.S., Brauer says.

Volkswagen, however, might use the weak Euro to reduce prices and boost struggling sales, Brauer says. VW's U.S. sales fell 3 percent last year even though overall U.S. auto sales across all brands grew 6 percent.

It's the same issue with, fine wines, Gucci handbags and those designer stiletto shoes.

Bill Earle, president of the National Association of Beverage Importers, which represents 20 to 25 beer, wine and spirits importers, says the price of fancy wines like Brunello or Chianti Classico that are on the shelves now were already set three or four years ago when contracts were signed by U.S. importers. But he says if the disparity continues between the U.S. dollar and the euro, "you might see a softening of prices."

At most, shoppers will see a two or three percent price dip, says Faith Hope Consolo, who leads retail leasing and marketing at Prudential Douglas Elliman and specializes in the luxury market.

"Anecdotally, U.S. prices haven't gone down on European-made apparel and alcohol, though such declines would take some time to filter through the system," Consolo says. "We probably won't see the effects for several months."

That's because the production cycle for European brands takes about a year, so those so-called status products were already produced. Moreover, Nate Herman, vice president of international trade for the American Apparel & Footwear Association, noted a shift in manufacturing away from Europe and more toward Asia — like China and Vietnam — as factories in that region have improved the quality of making complicated goods.

But even if prices go down on high-end European goods, shoppers won't feel it. Price tags have been soaring way out of reach for most Americans over the past few years. For example, Chanel's classic handbag, which was priced at $2,250 in 2007, cost $4,900 last year, according to Robert Burke and Associates, a luxury consulting firm. And Louis Vuitton's iconic monogram canvas handbag, which sold for $620 in 2007, climbed to $970 last year.

The one bright spot for Americans: vacations to Europe are now much cheaper. Thanks to the currency shift, travelers will pay less for hotel rooms, museum admissions and meals out.

"It's basically a 20-percent-off sale on the whole eurozone for Americans," says Adam Goldstein, CEO and co-founder of airfare search site Hipmunk.

There are 19 countries that use the euro. So those considering deals should look at Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia and Spain.

"This is the best time to travel to Europe in years," says Anne Banas, executive editor of SmarterTravel. "Americans can now indulge in a fancy pastry and chocolat chaud without the budget-busting guilt."

The catch: it will still cost a lot of money to get to Europe during peak summer months. Demand for travel is so strong that most airlines don't have to cut prices to sell seats.
Anyone who goes to a psychiatrist should have his head examined.