The Sarko Euro Rampage Leak and Maxi Euro Devaluations

Is the Euro depreciation planned or just a by-product of currency revulsion? No one knows. However, the events of the past week following the European shock and awe package are curious to say the least.

Here’s one curiosity. In the comments of my post on competitive currency devaluations, I said:

Obama’s role in the Euro crisis, especially in Spain is peculiar. I know most Americans like to think of the US President as the leader of the free world but his intervention in Spain’s domestic policy agenda suggests he knows something that you and I don’t know. I keep pointing the finger at AIG as an insurer or seller of CDS but there could be other explanations. [Is AIG the main CDS insurer for Greek government debt?]

In any event, the concept that the US President would call up another government leader and ask him to make budget cuts for the good of the world is something that will require an explanation down the line. And the Spanish media are positioning it that way too. The interesting bit is that Zapatero delivered – immediately. Very odd… and very worrisome, if you asked me.

The hilarious reply came from Olivier as to how an Obama-Zapatero conversation might have gone:

I might be wrong, but here’s the dialog I picture in my head:

O: Holà Zap, what’s up?

Z: ¿Hi O, yo wassap? (wondering why the honor all of a sudden, basking in the light for a sec)

O: listen Z, you gotta do something about that Euro shit before it goes out of control.

Z: … ¿I thought we just did, what with the EU/IMF shit and all?

O: well, that’s not going to fly with my Senate if you guys don’t seriously go through the motions, what with the massive US contribution to IMF… Also I have mid-terms coming up, I have to show who’s the man here. Hold people accountable, blah blah blah

Z: I see. ¡But my hands are tied, what with I’m a socialist, trade unions and shit you know!

O: I’m not asking, I’m telling.

Z: … ¿Can I at least leak that you called me so it looks like my hands are tied and it’s serious and shit?

O: Sure, you do that.

O: Well, it’s been nice to catch up, we should do this more often. Say hello to the wife and both kids, hmmkay?

Z: OK, later. I think I’ll leak some shit about Sarko too. Maybe tomorrow.

Here’s that leak about French President Sarkozy allegedly threatening to leave the Eurozone  (in Spanish):

Zapatero: "Sarkozy amenazó con salirse del euro" · ELPAÍ [Update: The Guardian has the same story in English while Le Figaro, a French daily denies the claims.]

Funny thing is the Chinese  may not like a Euro maxi devaluation strategy as they are hitched to the wrong currency. Commenter Abhishek explains:

Another side effect of this Euro going down is that China may even devalue its currency against the dollar.The paper thin margins for the Europe export dependent companies would be wiped out leading to a domino effect. For example look at Suntech, world’s 2nd largest solar company.

Interesting times.

  1. Sam Costanzo says

    France leading Club Med in revolt against German hegemony, and unlike Germans they welcome devalued Euro.

  2. ibexsalad says


    I think you’re missing the point here with regards to Zapatero. The unfortunate was faced with the prospect of performing a 180 degree policy about face – abandonning his stance that everything would get resolved through something called ‘social consensus’ and actually becoming a protagonist. Given the importance of what happens in Spain to the European outcome, all marketing tools available were brought to bear in the runup to the parliamentary bombshell in which he finally had to admit that someone would have to pay – and that it would be the civil service.

    Obama gladly loaned his legitimacy to this end.

    1. Edward Harrison says

      Yes, that is what happened. How does that differ from anything I say?

    2. Edward Harrison says

      I think the point is that even after Obama’s intervention Elena Salgado has
      refused to consider tax increases and says the deficit cuts will come from
      different areas. So, on the one hand, Zapatero is using Obama the way
      management consultants are often used – to deliver bad news that management
      cannot deliver themselves. Yet on the other hand the Spanish government
      still is not credible in its plan to meet budgetary targets.

      Zapatero is merely buying time. His position shows you how unworkable the
      euro is. You have almost thirty percent unemployment in Andalusia and HR is
      expected to make budget cuts? And Spain’s debt to GDP is fairly benign in
      the scheme of things. Spain is THE prime example of a country that needs to
      be outside the euro zone.

      Sent from my mobile phone

      1. ibexsalad says

        The first comment you quote has Obama as a canary in the coal mine…

        Do you expect them to come out with the whole package on day one? Pensions are in there to take the political heat later to prove that the guv is willing to compromise. After all, they’re only talking about freezing them.

        You have, by the way, to know something about the social policy of the regional PSOE under Manuel Chaves before you can use Andalusian unemployment statistics in support of an argument.

        Chaves, purposely made it easy fro people to remain in the regions small towns so as not to lose them as party faithful if they were to move to cities. This was primarily achieved by not investigating unemployment insurance claims. The end result of two decades of this is that southern respondents do not even perceive any disconnect, when they answer the EPA survey, between working under the table at a semi-permanent series of temp jobs and claiming that the are unemployed. With Chaves gone, this may be changing under Griñan, by the way.

        The true canary in the coal mine for Andalucia may be the regular reports over the past two years that the underground economy is actually growing in nominal terms during the recession. If this is true in an environment of labour price deflation, it implies a huge transfer of economic activity from above- to below-ground. Everyone here uses the government to fund their deficits but there’s not 30% unemployment in your wildest dreams.

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