Speculators turn their sights on Europe

Speculators turn their sights on Europe

By Mark Milner

LONDON: Asia's central bankers must be getting fed up with finding their currencies in the speculators' sights. Last Friday, the Malaysian ringgit, the Philippine peso and the Indonesian rupiah were all on the skids again. Not to worry. Help may be at hand, from a majority of members of the European Union.

The genus of the Asian currency crisis lay in the fact that many Southeast Asian countries had effectively pegged their currencies to the dollar. That gave the speculators a fixed target at which to aim because central banks felt obliged to spend their foreign exchange reserves defending them.

Now that most of the links have been broken, the speculators will be looking for fresh opportunities. Europe could fit the bill. The likely 11-strong group set to sign up for the first wave of monetary union at the beginning of next year are scheduled to pencil in as early as May the parities at which their currencies will subsequently be merged into the euro.

As a result, the speculators will have the thick end of eight months in which to try their luck against a whole range of targets whether the parities chosen are based, say, on either existing central rates in the exchange rate mechanism or some more market-related method.

There are good enough reasons for giving markets timely warning. Simply picking the market rate on the last trading day of this coming December would, for example, open up opportunities for manipulation.

But the current strategy does carry risk. Currency fluctuation is by no means dead, though to be fair it is far more muted than it once was among the countries most likely to make the single currency first time round.

That, however, is based on the increasing market perception that the political will behind monetary union will be sufficient to see it to fruition. The real test is yet to come. The world's currency players may be convinced monetary union is going to happen on time with a credible number of countries making the starting line up.

It may prove a different matter when they start to see actual numbers -- both the economic data on which members are chosen and the parities at which their currencies will be locked in. It could soon be time to fasten seatbelts, there is bound to be turbulence ahead. Horse trading

Speaking of May, it will be interesting to see if Europe's leaders have by then got round to deciding just who will run the European central bank -- becoming, arguably, one of the most powerful (and least accountable) figures in Europe.

France's decision to put forward Jean-Claude Trichet, the head of the country's central bank, in opposition to the candidacy of Wim Duisenberg, the current head of the European Monetary Institute and the man initially expected to be a shoe-in for the ECB job, has already meant intense lobbying among the governments of the member states which will decide the issue of who will head Europe's central bank.

And the horse trading over the ECB is likely to embrace the election process for the presidency of the European Bank for Reconstruction and Development where Jacques de Larosiere is due to step down from the presidency at the end of the month. Though the EBRD is by no means an exclusively European preserve, European Union member states do control a majority of the votes.

The Belgian newspaper De Standaard last Friday came up with an interesting variation on a theme already floated by the country's finance minister Philippe Maystadt -- that the first eight-year presidency at the ECB should be shared between Duisenberg and Trichet.

The De Standaard's variation was that the split would be achieved by imposing an age limit on the post of Europe's central bank chief. That would mean Duisenberg could take on the job at the beginning of monetary union but would have to stand down part way through the first term. De Standaard suggested that the deal, which it said had been brokered by Luxembourg Prime Minister Jean-Claude Juncker, would also see Maystadt move to the EBRD.

On the face of it, the split term might appear to hold some attractions. It can at least be billed as a compromise which would avoid some unseemly public squabbling over Euro-jobs for the boys -- though the squabbling will still go on in private over the EBRD and, later, the top post at the European Investment Bank.

Central bank hawks -- a common enough breed in Europe these days -- are unlikely to be impressed, however. Both Duisenberg and Trichet are highly regarded but the position of the ECB president was designed to reassure financial markets that the man or woman at the top would be independent of political pressure. The chosen way was to give the incumbent only one term in office but to make it a long one.

Consequently, splitting the term between Duisenberg and Trichet in direct response to French political pressure is hardly likely to add to the credibility of presidential independence.

Indeed, there are those who would argue that the French put forward Trichet's name in the first place precisely because the administration was concerned about the absence of political accountability.

With Britain having taken on the EU presidency for the next six months, the role of honest broker in the affair of the ECB president has fallen to Tony Blair. Tricky.

A story in the true spirit of Christmas has arrived, belatedly, from the Falklands. The Islands government has taken pity on the poor South Koreans whose currency has been so battered of late. Usually, the Koreans fork out around pounds 12 million a year to fish off the Falklands. This time round, in view of the circumstances, they can pay less, and later.

-- Guardian News Service