♠ Posted by Emmanuel in Credit Crisis,Currencies
at 1/01/2009 09:05:00 AM
Our Slovakian friends rung in the New Year in a novel way: by feting the country's adoption of euro currency on 1 January 2009. I, of course, will remain a large booster of the euro in 2009 given its handlers' general reluctance to molest the currency via negative real interest rates, unfettered money printing or other cheap tricks. For better or worse, the ECB is still heavily influenced by the conservatism of the German Bundesbank--a firm believer in sound money principles which have seemingly gone out of style, especially in countries featuring Anglo-Saxon models of economic governance. The ghosts of Weimar-era hyperinflation still spook the Germans and will do so well into the future.
It is precisely this kind of unfashionable adherence to sound money principles that will likely see Slovakia fares better than its neighbors in 2009 when it comes to dealing with currency issues. Many of its other Eastern European counterparts that put off adoption of the euro during less trying times are now regretting their decisions. As small open economies often running substantial external deficits during a credit crunch, many Eastern European countries are undoubtedly contemplating politically unpopular calls to the IMF, as Ukraine and Hungary have already done. The picture to the right says it all: two ladies decked out in New Year's livery standing near an ATM admiringly behold euro cash as some of the first to avail of it. The scene may appear perverse to casual observers and Eurosceptics, but their delight is genuine. When you understand the context, it becomes even more meaningful.I suspect the Slovaks have good reason to cheer the arrival of the year 2009.
UPDATE: TIME has a piece entitled "Is the Euro the New Dollar?" which discusses countries lining up to join the EMU as well as the currency's tenth anniversary.
