“After the euro dropped below parity to $0.98, at the end of January 2000, the Eurogroup issued its first substantial joint statement on exchange rates in the form of a ‘common understanding’: “The Euro-11 Ministers and the ECB share the view that growth is now very robust in the Euro area and is increasingly rooted in domestic demand. As a consequence, the Euro has potential for appreciation, firmly based on growth and internal price stability. A strong economy goes along with a strong currency.” The statement was the beginning of a series of increasingly strong warnings to the markets about the weakness of the euro.”
Taken from C. Randall Henning’s 2007 paper “Organizing Foreign Exchange Intervention in the Euro Area”.
Now these were wild years for European governments and the Eurogroup. Sort of a 1968 for the Eurogroup.
These days are gone.
Welcome to boring 2013. Where you would never read an obvious statement of this kind:
The Euro Ministers and the ECB share the view that growth is now very weak in the Euro area and is increasingly dampened by in domestic demand. As a consequence, the Euro has potential for depreciation, firmly based on growth and internal price stability. A weak economy goes along with a weak currency.“
A world where the ECB Governor rules out depreciation by saying that “let me be clear that the exchange rate is not a policy target, but it is important for growth and price stability” disavowing article 111 of the Treaty that explicitly states that “in the absence of an exchange-rate system in relation to one or more non-Community currencies … the Council, acting by a qualified majority either on a recommendation from the Commission and after consulting the ECB or on a recommendation from the ECB, may formulate general orientations for exchange-rate policy in relation to these currencies.”
A world where the ECB Governor, instead of rushing toward depreciation in an extremely recessionary environment, prefers to shape inflation expectations toward deflation by stating that “annual inflation in the euro area has continued to moderate, falling from 2.5% in October to 2.2% in November and December and 2.0% in January, as we had foreseen. Inflation is expected to decline to below 2% in the near term”, as if inflation expectations declines announced by a central bank do not translate, when interest rates are close to zero, in higher real rates.
Boring world. Only hope? M. Hollande gets some serious back-up from Italy in the next few months in the euro power boring room. So we might finally Let the Sunshine in.