Euro Weakness Booms Bitcoin and Stocks

The euro has turned downwards against the dollar after reaching a two year high at $1.235 per euro.

Since January the currency has lost 3.5 cent to now $1.2, seemingly reversing a dollar weakness trend.

This may be because the European economy is expected to contract again this quarter due to strict lockdowns, while in US they take a far more lazy fairy approach not least because Americans are and have been disobeying.

There’s signs the Europeans are beginning to do so too. In Poland in particular, people are opening restaurants despite that being against the decrees, with courts there saying all these lockdown rules are unconstitutional.

Americans moreover arguably have handled better the financial side of the lockdowns, while in Europe complaints keep increasing regarding lack of financial asssistance.

The US has handed out some $5 trillion in stimulus and plans another $1.9 trillion, while Europe has barely done €2 trillion with no stated plans for further stimulus.

The euro therefore was gaining against the dollar as it was entering circulation more quickly, but now the euro is losing not due to printing but because the economy is expected to contract, and thus markets expect less demand for the euro.

Anticipating a potential euro fall, europeans are probably turning to hard assets like bitcoin and maybe even stocks, with the latter in particular seemingly undervalued compared to their American peers.

Like the Federal Reserve Banks, the European Central Bank (ECB) has considerably increased asset purchases, in particular government and corporate bonds.

However unlike in US where the benefits of this are distributed through Congress stimulus bills, in Europe it is a national approach.

Richer countries like Germany thus gave some €10,000 to freelancers. Deeply indebted countries like Italy are struggling to even sort out what government they’ll have – Mario Draghi as the new Prime Minister apparently – and have been far less generous with covering even the wages of 9-5 employees.

The $2,000 check to all Americans given last year catches anyone that might have fallen through the cracks, like the self-employed or those on zero hour contracts.

In Europe instead the equivalent of the $2,000 check has probably been wasted on bureaucracy, with all this giving rise to the europoor meme, that being Americans calling europeans poor because they not getting stimulus.

All this shows a problem that was first revealed in 2012 and wasn’t really addressed. There is one euro, but there isn’t one euro policy.

The exit of Britain may now change that as the core nations can move towards greater integration on fiscal policy, but there doesn’t appear to be much of an urgency on the matter even as Europe now faces a second contraction.

That could change and probably has to change because Germany is in deflation. So more euro has to be printed for stimulus and more importantly a lot more euro has to enter circulation.

With Draghi now expected to take charge of Italy, a more coordinated approach maybe should be expected that moves the focus from the nation state to the continent at least where the benefits or the costs of this euro deflation are concerned.

We should therefore perhaps expect Germans in particular and also the French to invest a lot more in assets so as to cushion some of that devaluation that one way or another seems to be coming either through stimulus or due to the economy contraction.

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