Tuesday, April 12, 2005

Currency crisis if France rejects European Constitution

Currency crises for new EU states if France votes No

The chief economist at Deutsche Bank, Norbert Walter, told FT Deutschland that a French No might cause a currency crisis in the new member states. "There could be speculative attacks on currencies of the new EU member states", Mr Walter said. "These countries would then have to raise their interest rates. It could cause enormous exchange rate fluctuations", he warned. Mr Walter explained that a rejection of the Constitution would jeopardise new member states' euro hopes, sparking the currency attacks.
This article from EU Observer sounds very dramatic and will no doubt delight many of those campaigning against the Constitution. Before getting too exicited I think one needs to pay attention the use of the words “could” - at no point does Norbert Walter say it “will” happen.

One might very well take the view that this should be good news for the French and may even encourage them to vote “NON” – the French were never happy about EU Enlargement, and might well be delighted at the prospect of plunging the currencies and economies of the new EU member states into temporary turmoil. Are the French that vindictive and capricious? Some are, but not all.

It is early days yet to be predicting a crisis. The French, despite, or maybe in spite of, the opinion polls, may very well vote “OUI”, which is what I think most likely on the day; although it may, like the battle of Waterloo, be “a close run thing”. Having said that making predictions about the future is never wise not even if you happen to be the Chief Economist of Deutsche Bank.

(Norbert Walter and his Deutsche Bank Research team web page is linked to in the sidebar of this blog under "Current Affairs".)