(Headlines - scroll down for full stories)
1. France to Ditch Euro?
2. Roger's Still Stocking Up on Commodities
3. Paulson's Contingent Pushes China on Currency, Access
4. OPEC Agrees to Cut Oil Output
1. France to Ditch Euro?
On the outside looking in, the performance of the euro has been stellar. It's up
about 11 percent against the U.S. dollar and 20 percent higher against the
Japanese yen. But the euro's high exchange rate is forcing some countries,
especially France, to rethink the unified currency, according to the Telegraph's
Ambrose Evans-Pritchard.
Various French officials are criticizing the European Central Bank's (ECB's)
monetary policy, accusing the body of slowing France's economy. One official
even stated that the country "must … [take] back our sovereignty."
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In fact, France's trade deficit spiked $2.7 billion due to lower exports. The
country's auto industry is also suffering, with car output falling 14 percent
this year, points out Evans-Pritchard.
France's trade minister, Christine Lagarde, grumbled, "We sold one less Airbus,
we haven't sold any satellites, and we have not sold any ships. Frankly, the
battle against inflation has been won. It's high time the ECB began thinking
about growth."
The ECB has one goal: to stave off inflation. That's contrary to the U.S.
Federal Reserve, which acts to contain inflation while also maintaining growth.
The ECB has hiked interest rates six times in the past 12 months to 3.5 percent.
France's premier, Dominique de Villepin, pointed to a clause in the Maastricht
Treaty, the treaty that was the basis for the creation of the European Union and
the euro, that gives EU ministers power over the currency. In other words,
individual European ministers could usurp the ECB's control over interest rates.
"We must clarify matters in exchange rate policy, which means taking back our
sovereignty," said de Villepin. "This is a tough fight that we are going to have
to carry out at a political level."
Ségolène Royal, socialist candidate for president, accused ECB President
Jean-Claude Trichet of being undemocratic. "It's not for Mr Trichet to dictate
the future of our economies: It's a matter for our leaders chosen by the people.
We must completely change the charter of the central bank," she said.
Philippe de Villiers, the anti-euro MPF movement leader, tells Evans-Pritchard
he is launching a referendum drive for a return to the franc. "The euro is a
failure. It's weakening our industry and our exports to the point where Airbus
is preparing to build plants directly in the United States and China," he said.
Villiers added that dumping the euro would be an easy task. "As we saw with the
Czech and Slovak currency split, leaving the euro is technically quite simple.
We could do it in eight days," he said.
Tony Blair's former economic advisor, Derek Scott, also slammed the euro. Scott
tells Evans-Pritchard, "The ECB faces an impossible task because there is no
such thing as Euroland: there are groups of countries going different ways."
"Germany has clawed back competitiveness by squeezing its economy, but Italy,
France, Spain, and others have been enjoying property booms. Boom goes bust,"
added Scott. "In the end, the ECB may to have to respond to the needs of the
weakest economies, or monetary union will fall apart," he said.
In competitiveness comparisons, Italy has lost 40 percent against Germany while
France has lost over 20 percent. But instead of being able to have their
currencies weaken in order to gain competitiveness, the countries must compete
with the same currency.
Stay tuned.
Editor's Note:
2. Roger's Still Stocking Up on Commodities
Commodities guru Jim Rogers is so bullish on China that he's considering moving
his family there from New York — and he's teaching his 3-year-old daughter
Chinese.
He has already labeled the furniture and appliances in his Manhattan apartment
in both English and Chinese to help his daughter learn the language.
Not surprisingly, Rogers — co-founder of the Quantum Fund and creator of the
Rogers International Commodity Index (RICI) — is also bullish on commodities,
despite their recent downturn.
Rogers views the dip in commodity prices, including oil and copper, as buying
opportunities. He told Morgan Stanley clients in a recent address that the
downturn is only a short-term adjustment in a still-rising market, driven in
recent years by China's voracious appetite for everything from gold to concrete.
He also noted that agricultural commodities such as corn and wheat are hitting
multiyear highs, according to The Wall Street Journal.
But Rogers is anything but bullish on the dollar. He said the greenback's
decline "is going to mess up our standard of living drastically."
He's already stocked his daughter's portfolio with commodities and Swiss francs,
believing that when she turns 18 in 2021, the dollar may no longer be the
world's preferred currency.
Rogers, his wife, and daughter have spent the last two summers in China and are
hunting for a permanent home, perhaps in the city of Dalian, home to one of
China's three commodities exchanges, the Journal reports.
But the recent downturn in housing prices may put a damper on those plans.
Rogers said he won't move to China until he sells his Manhattan apartment,
bought in 1977 for $107,000. Asking price: $15 million.
Editor's Note:
3. Paulson's Contingent Pushes China on Currency, Access
A high-powered group of U.S. officials led by Treasury Secretary Henry Paulson
pressed China over its currency and trade policies Thursday, while Chinese
officials stressed changes were being made over the long term.
The start of a two-day "strategic economic dialogue" underscored the differing
expectations of China and the United States. Paulson, the six other
Cabinet-level officials and the Federal Reserve head traveling with him face
pressure from American businesses and Democrats in Congress to win Chinese
concessions on market access and lowering a swollen U.S. trade deficit.
Opening the talks in Beijing's Great Hall of the People, Paulson stressed the
"importance of currency flexibility" in his opening statement at the talks,
according to a text released by his department.
"To maintain domestic support for continued global economic integration, we both
must pursue macro-economic policies that facilitate balanced, sustainable growth
and raise living standards," he said.
His counterpart, Vice Premier Wu Yi, expressed optimism the discussions would
"help us enhance mutual trust and remove misgivings." She said the dialogue
would focus on economic issues that were of "global, strategic and long-term"
interest.
While the talks ground on, evidence of China's growing economic power and the
challenge it presents to the United States mounted. The Chinese currency, the
yuan, rose to its highest level since Beijing began re-valuing the currency in
July 2005, partly in response to U.S. criticism that China was keeping the
yuan's value low to make Chinese exports cheaper.
At the same time, Chinese stock markets in Shanghai and Shenzhen hit five year
highs — a vote of confidence in an economy that continues to grow at an average
annual clip of 10 percent and remains a manufacturing and export powerhouse.
China's trade surplus with the U.S. is expected to exceed last year's $202
billion.
During the talks, the Chinese and U.S. officials discussed developments in
China's economic reforms, trade and investment disputes, financial services
liberalization, and Beijing's commitments to World Trade Organization rules,
U.S. Trade Representative Susan Schwab said afterward.
"We talked about the importance of China being in compliance with the letter and
the spirit of its WTO obligations, not because the U.S. asked for it but because
it is in China's own interests," she said in an interview.
Federal Reserve chief Ben Bernanke told Chinese officials that a stronger yuan
would be good for China, promoting sustainable growth, Labor Secretary Elaine
Chao told reporters after the morning session of talks.
"He said increasing the currency would be good for China," she said.
But a Chinese central bank official told reporters earlier this week that
Beijing sees no reason for rapid changes in a system that restricts the yuan's
daily fluctuations to a narrow band against the dollar.
Both sides have tried to take the sting out of the economic friction. On the eve
of the talks, a few hefty trade deals were announced, including Home Depot
Inc.'s purchase of a chain of Chinese home improvement stores and the sale of GE
Aviation jet engines to a Shanghai airline.
Beijing announced that it had launched an anti-piracy campaign targeting
producers and distributors of illegally copied movies, music, and other goods.
China is believed to be the world's leading source of pirated goods ranging from
Hollywood movies to designer clothes, sports equipment, and even medicines.
American officials say Chinese piracy costs legitimate producers up to $50
billion a year in lost potential sales.
Washington has warned Beijing might face a formal complaint in the World Trade
Organization, with the possibility of sanctions, if it fails to stamp out the
illicit trade.
© 2006 Associated Press.
Editor's Note:
4. OPEC Agrees to Cut Oil Output
OPEC has agreed to an oil output cut of 500,000 barrels per day, or 2 percent,
delayed until Feb.1 when the northern winter is ending, the group said on
Thursday, sending oil prices above $62.
By postponing a further reduction until peak demand has passed, OPEC is
acknowledging importer nations' concern that a cut now will drive prices higher
and hurt their economies.
"We are committed to supplying the market but we want to establish a balance
between supply and demand," said OPEC President Edmund Daukoru. He confirmed
Angola would become OPEC's 12th member in 2007, giving the cartel even more
muscle.
The group that pumps over a third of the world's oil has already curbed output
this year — by 1.2 million bpd to 26.3 million in October to halt a 10-week, 25
percent price slump.
As recently as last week there was little doubt a further cut of at least
500,000 barrels per day would follow from Jan 1.
But with oil above $60 and consumer nations on edge, the mood shifted in some
delegations towards a slight delay.
U.S. oil was up 82 cents at $62.19 at 1342 GMT, having hit a session high of
$62.72 on the news.
OPEC is in agreement the market is oversupplied — stocks in top consumer the
United States are the highest since 1998 for the time of year — but it wants to
get the timing right.
Cut too soon and prices could spike. Delay, and prices could fall sharply in the
second quarter as demand slackens.
"The market is out of balance — stocks are at more than a five-year high,"
Daukoru said.
Consumer nations point out inventories are in decline.
Oil stocks in the OECD group of industrialized countries fell 40 million barrels
in October, the International Energy Agency said on Wednesday, and the trend
continued in November.
Saudi Oil Minister Ali Al-Naimi conceded the market is in better shape now than
when ministers last met. He estimated OPEC had succeeded in removing half the
excess 100 million barrels.
But there was more work to do, said Naimi, who steers the policy of the world's
leading oil exporter. Saudi Arabia is expected to shoulder about 160,000 bpd of
the latest cut, taking the kingdom's total supply curbs to more than 500,000
bpd.
"I hope the market appreciates we are working so diligently to bring supply and
demand in balance, to have inventories at a reasonable level so that we do not
have gyrations," Naimi said.
Balancing Act
The move to delay the output cut by a month should go some way to addressing the
concerns of import-dependent countries.
U.S. Energy Secretary Sam Bodman and International Energy Agency head Claude
Mandil had both called on OPEC to wait before making further supply reductions.
The IEA, adviser to 26 industrialized countries, said in its monthly report on
Wednesday OPEC cuts from Nov. 1 were making themselves felt, "cold comfort for a
risk-prone global economy already facing another winter with high oil prices."
Oil has fallen from a mid-July peak of $78.40 but is still three times the price
at the start of 2002 as Asian demand kicked in. Refining constraints and worries
over supply from Iraq, Nigeria, Iran, and Russia helped fuel the rally.
Price hawks Iran and Venezuela said they expected oil prices to steady above $60
as a result of Thursday's agreement. Saudi Arabia insisted price had played no
role in OPEC's decision.
"A lot of things influenced our decision, including the dollar," Naimi said.
Worries over U.S. economic weakness have knocked the dollar, eroding OPEC's
purchasing power.
Barclays Capital analyst Kevin Norrish said OPEC's decision set the stage for a
tighter oil market.
"Our forecast calls for a quarterly average in the third quarter of $80.20 a
barrel [for U.S. crude] and we're the most bullish forecaster. I think this
[cut] would make us even more confident about that," he told Reuters.
Oil analyst Geoff Pyne added a note of skepticism.
"It's a fudge which gets round the market and reconciles the two different views
on what the group should do," he said.
According to Reuters estimates, OPEC has made good almost two-thirds of the
pledged 1.2 million bpd reduction. OPEC ministers put compliance much higher at
above 80 percent.
© 2006 Reuters.
Editor's Note:
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