How can it be that among the major economies the Euro area is the one struggling most to come out of a never ending recession following the financial crisis and yet during 2013 the Euro strengthened against all major currencies:+26.42% against the Japanese Yen
+21.21% against the Australian Dollar
+ 4.28% against the US Dollar
+ 2.30% against the GBP sterling
+ 1.46% against the Swiss Franc.
Probably the reason is that all international currencies have a single Treasury in charge of guarding competitiveness by managing the external value of their currency through verbal or actual intervention with the help of their respective central banks.
In the Euro area no single federal government is charged with managing the external value of the Euro and the ECB cannot take initiatives to do what governments should be doing.
My hope and wish for 2014 is that the markets are kinder to the Euro to give a chance for boosting export competitiveness in crisis countries like Italy Spain Greece and Portugal and help create sustainable new jobs.
But the question remains: who's minding the Euro shop to ensure that it stays at a level of external value which protects competitiveness and guards against unfair devaluations of other currencies?
One can do a bit of number crunching to explain it more accurately. But probably the surplus in the current account is one reason why despite the stronger recession in the euro area the euro remained strong. Obviously this applies to the euro area as a whole but not necessarily to each individual economy. The surplus is primarily a reflection of nordic savings and more recently southern austerity. Secondly whilst monetary policy in the Euro Area is expansonary, under Trichet it was relatively behind the curve. Ths might not explain the puzzle with Japan. But Abenomics is probably behind the 25% weakenng of the yen in mid 2013
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