Are we seeing a change in the EU direction? With individual fiscal policies and a budget system allowing countries to borrow above ability to repay when interest rates move up, the Monetary Union is asking for trouble and has done so for years. However the argument that growth rate and productivity are very different in different parts of the Union and therefore undermines a single currency is not necessarily right. In the US growth rate always has varied in different parts of the country without influencing on the dollar.
Trying to fix the problem, initiated by Germany and France, is met by scepticism from countries outside the monetary union with Britain vetoing changes, followed by countries like Sweden, with perhaps the best control of the economy inside the Union countries and Poland, it is bound to be prolonged pain and suffering.
Lead by Germany and France the Monetary Union has only one chance, implement polices equal to all and let the countries outside be a different league.
Third group European union, EFTA is rather quite in the discussions. The Norwegian government will no doubt be supporting the IMF, not out of solidarity but in support of a Europe being its major market. The Swiss reaction is still open.
Interest rates falling again this week. In Denmark by 0.4% to a all time low 0.8% whilst the ECB is down with point 5 to a level of 1%. This will force the Norwegian bank to lower it’s interest rate next week. The question is only how much, because a small adjustment will not help, loosing market shares in the export industry month by month.
So how far is ECB willing to go? All the way down or is Super Mario expecting changes before he hits the bottom? Next week will tell us more and need to tell us more, the clock is ticking for Europe.
