Should the Euro break up?

Several experts have said that the Euro has to be broken up and some countries, like Greece,should issue their own currency. How will this help to solve the debt crisis in Greece?

Greece now issue government bonds in Euro. Because of the risk of insolvency, the interest rate on these bonds have shot up. If Greece were to leave the Euro zone and issue their bonds in their own currency, i.e. the Drachma, the interest rate will be even higher as the investors have to face the risk of default and depreciation in the currency.

How will having their own currency help the Greek government? I have an interesting observation. The Greek government is not able to collect sufficient tax revenue to pay their expenses - e.g. due to tax evasion. They can continue to fund their deficit with debt in their currency. The interest rate will shoot up and the currency will depreciate over time. The depreciation in the currency is a way of lowering the standard of living for the people, who are living beyond their means. It is also an indirect way of taxation.

High inflation has its other negative impacts but this is a separate matter. It seems to be a good idea for each country to have its own currency, rather than to join a strong currency like the Euro.

There was a similar situation during the Asian Financial crisis. The currencies of several Asian countries were pegged to the US dollar. As this was unsustainable, the pegs were broken, leading to quite severe damage. After the currencies were unpegged, they were able to adjust to their right level and their economy regained their strength.

It looks like the Euro will have to break up.

Banks Accused of ‘Dishonesty’ on Reform

Bankers’ efforts to water down tougher new regulations by claiming they will harm economic growth are “intellectually dishonest and potentially damaging” and could inspire an even more robust crackdown, a leading UK regulator has warned.

“A profession which should stand for integrity and prudence now supports a lobbying strategy that exploits misunderstanding and fear,” said Robert Jenkins, who was named in July to the 11-member Financial Policy Committee, a new body charged with protecting financial stability.

“Banks can strengthen their balance sheets without harming the economy. They can do so by cutting bonuses, by curtailing intra-financial risk-taking and by raising term debt and equity,” he said.

http://www.cnbc.com/id/45412860

My comments: These are strong words, but I agree with the views expressed by Robert Jenkins. Actually, I prefer that commercial banks should return to their core functions of payments and loans, and should not be speculating in the markets.

Governance without guilt

I saw the phrase "Governance without Guilt" used in the Colombo newspaper. It refers to the concept that governance (of the country and business corporation) should be done ethically, i.e. without guilt. I also saw the phrase used for the garment industry, i.e. "Garment without Guilt". This is the Sri Lanka response to the greed and corruption that is now quite prevalent in the business and government sectors.

Unhappy with Singaporean Airlines

I met a Singaporean at the lounge in the hotel in Colombo. He had been travelling first and business class on Singapore Airlines for 20 years. Recently, he gave up on Singapore Airlines and now travelled on Asiana Airlines (from Korea). He was disappointed with using the new SIA website. He also found the counter service (often manned by foreigners) to be unsatisfactory. He now lived in Hong Kong as a permanent resident and travel around Asia for his business. 

Bank charges and anti-trust law

The attempt by some banks to impose debit card charges might violate the anti-trust law, as the banks and the associations might be acting in collusion. http://money.cnn.com/2011/11/22/news/economy/banks_antitrust_review/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29

In Singapore, we have the Competition Law, which has similar functions to the anti-trust law in America. I hope that our regulators will also look at the practices of banks, telcos and airlines in Singapore - as they are likely to follow the practices in America.

I prefer an environment where a business charge a package fee for its service and avoid making additional charges for additional items that should be part of the package. By imposing extra charges, the business is making life more complicated for its customers and also adding to the administrative costs. Often, the customers are not aware of the additional fees and are held under ransom - when they need the additional services.

The practice of charging additional fees has promoted a law-maker in the USA to introduce legislation to prevent some of the bad practices. While this legislation is not likely to be supported, due to the strong industry lobby, it goes to show the bad business practices.

http://money.cnn.com/2011/11/22/news/companies/baggage_fees/index.htm?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29

Investing in the stock market

Retail investors have been avoiding the stock market due to uncertainty, but corporations are buying back their own shares, as they represent good value. http://www.cnbc.com/id/45402485