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Russia Central Bank Directive Harms Europe
November 30, 2001
Summary
The Russian Central Bank has called for Russians to ditch any and all European currencies they hold to avoid problems after the changeover to the euro on Jan. 1, 2002. The bank seems to not understand the currency changeover process and is passing that apparent ignorance on to Russian citizens. The move will boost the dollar and thereby aid U.S. economic recovery. For Europe, however, the move creates a political and economic embarrassment.
Analysis
The Russian Central Bank on Nov. 27 advised Russians to sell any European currencies they hold to avoid confusion once the euro changeover takes effect, the Moscow Times reported. The euro will replace the currencies of 12 European Union states next year.
The call implies a deep misunderstanding among Russian leaders of the changeover process. This misunderstanding will lead to a fire sale of European currencies, including marks and francs, that will simultaneously boost the U.S. dollar and harm Europe.
A weaker euro would increase import costs and therefore inflation. Because Europe's monetary policy is extremely sensitive to inflation, it could also delay the Continent's economic recovery. Growth in Europe already is flat; Germany alone has seen nil for two consecutive quarters. STRATFOR a few months ago had expected EU states to pull out of the slump in early 2002. Following the Sept. 11 terrorist attacks on the United States, that forecast was lengthened to the third quarter of 2002.
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Dan
Russia Central Bank Directive Harms Europe . . .