Brussels Considers Imposing Currency Controls

[Llewlladdwr]

Brussels considers imposing currency controls
By Ambrose Evans-Pritchard in Brussels (Filed: 04/12/2003)

The European Commission is examining the legal basis for 1970s-style
exchange controls to stop the euro surging to destructive levels.

A team working for Pedro Solbes, economics commissioner, claims Brussels
may lawfully impose "quantitative restrictions" on capital inflows,
clearing the way for a crisis response if the dollar continues to fall.

The document, drafted last month on the orders of Mr Solbes's
director-general, Klaus Regling, concludes: "Should extremely disturbing
capital movements endanger the operation of economic and monetary union,
Article 59 EC provides for the possibility to adopt restrictive measures
for a period not exceeding six months."

More:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2003/12/04/cneu04.xml&menuId=242&sSheet=/portal/2003/12/04/ixportal.html&secureRefresh=true&_requestid=47795

[Commie Pinko Dirtbag]

1. Explain this economics layman

Why don't they simply

1. Sell lots of € at the currently inflated price
2. Drive it down to a more export-friendly rate
3. PROFIT!

And the second step isn't even "???".

[mumon]

2. They are doing that, BUT

The issue is what happens (as it probably is even currently) when nobody wants to buy euros? Or if you have no "excess" euros to sell?
It's the latter case that's the problem, see. All the euros are being snatched up because the dollar isn't worth the paper it's printed on, and isn't likely to be with the massive deficits we have.



When all you can buy are dollars?

The plan they came up with is for just this contingency.

Right now, people are trading dollars. But because of capital flows (the so-called "accounts deficit") there's not alot of people willing to buy dollars.

If NOBODY wants to buy dollars, then we have a currency crisis, (like being in Europe and nobody will trade your dollars for Euros, you can't buy anything in Europe), then they have to limit their transactions somehow.

Buy foreign bonds now, or foreign bond funds.