Euro update 2010

The euro survived the stress-testing of EU banks, ‘proving’ they could survive all that Mammon might throw at them. Despite complaints that the stresses applied to the banks’ balance sheets were no more stressful than a Chinese burn, that issue is officially dead. What the euro cannot dismiss so easily is investors’ ongoing fretfulness about Greece, Club Med and the EU’s security blanket. Slovakia has refused to pay. Spain wants a time-out on its austerity regimen. Ireland’s credit downgrade means it is paying more to borrow money than Greece, whose borrowing it must subsidise through the EU safety net. All is not sweetness and light for the euro.

Since its announcement two months ago Britain’s Austerity Budget has convinced not just the opposition Labour Party but the world at large that government spending cuts will condemn the economy to a decade (a century?) of decline. They are guessing, of course, but that does not make investors any more well-disposed to the pound. It is not just Sun readers who love a disaster; investors are equally as ghoulish.

August was a messy month for currencies, as it often is. At the best of times investors cannot know what will happen next. As we move into September that uncertainty is at a twelve-month high.