The euro is a weak Deutsche Mark. The status quo is synonymous, in 10 years’ time, with the dismantling of the euro” says Emmanuel Macron. Judging by recent M&A activity between England and mainland Europe’s largest venues, they appear to agree
“The trouble with socialism is that in the end you run out of someone else’s money” – Margaret Thatcher
Senior politicians and officials in influential positions in mainland Europe are now beginning to actually voice what many economists, business leaders and inhabitants of Britain and North America have been thinking for quite some time, that being the lack of a sustainable future for the Euro currency.
Today, Emmanuel Macron, the French presidential candidate, has voiced his opinion that the Euro has a lifespan of less than ten years.
Mr. Macron’s rationale is that he considers the single currency to have not provided Europe with full international sovereignty against the dollar on its rules. It has not provided Europe with a natural convergence between the different member states.
It is of great interest to hear such parlance from a French politician, France being a notoriously socialist country whose 35-hour working week and extensive vacations, combined with public ownership of a vast amount of large firms with massive trade unions, hence being very much aligned with the European Commission’s large scale unionist methodology rather than standing for independent free enterprise.
France has a debt to GDP ratio of over 247%, which, when compared to the United States (95%), and China (1%!) demonstrates the real cost of reliance on handouts from Brussels instead of modern commercial enterprise.
‘The dysfunctional nature of the euro is of good use to Germany, I have to say,’ said Macron, adding that a lack of trust between France and Germany was blocking major reforms that would increase solidarity among the 19 members of the euro zone.
It is most certainly poignant that Mr. Macron should broach that aspect of the distribution between nations in mainland Europe.
The Euro may well be a major currency, however,
When looking at the major interbank institutions in mainland Europe, absolutely none are on the world stage, and the financial markets ecosystem is completely undeveloped.
Instead of creating wealth and investing in modernity the way that the UK, US and the Far East do collectively, Europe lags behind, with an outmoded industrial system, living from bail outs which fuel the failing economies of Northern Europe and sponsor the 57% youth unemployment and low productivity of the southern regions.
Deutsche Bank may well be Germany’s largest institution and is also the second largest FX dealer in the world, but the ailing financial institution is not only a German institution whose operations in its home territory are dominated by retail and corporate traditional banking.
Far from it in fact.
Deutsche Bank’s real revenue driving division is its interbank FX and electronic trading section, based in London.
Fiscal and operational difficulties on Deutsche Bank’s home soil have created a situation in which the bank has been the subject of government discussion for almost a year now, ever since the firm began reporting grave losses. Indeed, Germany’s finance minister Wolfgang Schaeuble even issued a public statement in the spring this year that there was ‘nothing to worry about’ in order to sweep Deutsche Bank’s grave position under the carpet.
A series of plummeting share price episodes has once again emerged at the end of October last year, and now an even more precarious position has been demonstrated in that Germany’s government stated at the end of last quarter that it would not be prepared to provide any form of state funded bail out for the bank should it eventually hit the buffers.
The company’s litany of regulatory fines for malpractices in specific core areas has not enamoured the government either, the most recent example being a $14 billion fine from the US Department of Justice for mis-selling mortgage backed securities. LIBOR and FX benchmark manipulation has also cost the bank gravely.
Now, despite the German government’s lack of will to prop up Deutsche Bank, a further difficulty has emerged, that being that it has now become somewhat apparent that Germany could not provide emergency capital to the bank even if it wanted to, meaning that any lobbyists from important financial markets regions such as London would find it difficult to put pressure on the German government in order to maintain Deutsche Bank’s prominent position in the electronic trading world.
Societe Generale and BNP Paribas are way down the scale, and once again, they operate their interbank divisions from London and New York, not Paris.
With Britain having never joined the eurozone, it would be churlish to dismiss the effect its exit from the union will have, largely because Britain’s commercial input into the European Union was disproportionate throughout its membership years.
Thus, whether the pound was retained or not, makes no difference to the fate of the Euro post Brexit.
For example, Britain’s financial sector employs 0.0009% of the entire European Union workforce, yet produces 16% of all tax receipts.
Remove that, and what is left? A lot of olives would have to be grown and tens of thousands of people would have to wake up from their hours-long siestas to even get near to that level of efficiency and productivity.
‘The euro is a weak Deutsche Mark. The status quo is synonymous, in 10 years’ time, with the dismantling of the euro. – Emmanuel Macron
Additionally, the reasons for large entities focusing their efforts on London when conducting major Anglo-European mergers and acquisitions is a case in point.
The proposed merger between London Stock Exchange and Deutsche Boerse created massive waves in London, with Lord Myners having expressed deep concerns, and the European Commission subsequently launching an anti-competition investigation into the structure of the proposed acquisition.
The important conclusion from the year’s worth of wrangling is that the newly merged venue would prefer to host its head quarters in London, not Frankfurt.
This is also obvious when considering the action London Stock Exchange took in order to put an end to the European Commission’s intevention.
The merger between the two venues would create the world’s largest margin pool with a value of 150 billion euros, therefore could impede competition for smaller trading venues that rely on LCH.Clearnet as well as other firms that offer similar collateral settlement services.
On that basis, London Stock Exchange’s response was to make a quick attempt to sell LCH SA in order to address proactively any anti-trust concerns. LCH Group which holds the European subsidiary LCH SA is 57% owned by the London Stock Exchange, with the remainder being owned by other users of the service.
What does this mean? It means that in order to preserve its operations in London, LSE and Deutsche Boerse would happily jetison the entire European electronic trade clearing division of LCH (owned by LSE) showing that they are not interested in European business entities, yet are vested in keeping a vast venue that would result from this merger in London.
That is a very strong indictment of their view of the two different landscapes.
Europe itself is by default distancing itself from the business environments of Singapore, Hong Kong, North America and Britain as its unaligned economic and business policies and lack of infrastructure and modern practice will make for a difficult entry to the world stage in the way that the Far East and North America have established over many years.
If a wide gap begins to appear between Italy, France and Spain compared to an independent and prosperous Britain, Mr. Macron’s prediction may well be correct.#Deutsche Bank AG (FRA:DBK), #Deutsche Mark, #Emmanuel Macron, #euro, #london stock exchange, #m&a