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[Thai Economics Library | Archives| Currency Crisis 2007| Entrepreneurs]
June 23, 2010

Economist Paul Donovan on how the Euro Crisis may impact Asian exports

By Jon Fernquest

EuropeThe so-called "2010 European sovereign debt crisis"that has been shaking Europe this year seems far-away and remote from countries in Asia like Thailand.

Exports, however, are one important factor that ties Thailand quite closely to the destiny of the EU.

Europe is both a revenue-generating export market for Thailand and is also a competitor with Thailand for other export markets.

Economist Paul Donovan at UBS Investment Bank discusses the Euro Crisis and its possible impact on Thailand in today's article which begins after the vocabulary.

crisis - an urgent, difficult or dangerous situation วิกฤต
euro crisis, 2010 European sovereign debt crisis - concern over rising government deficits and debt in European countries such as Greece, Spain and Portugal led to a downgrading of government debt and created alarm in financial markets, this also led to  a "crisis of confidence as well as the widening of bond yield spreads and risk insurance on credit default swaps between these countries and other EU members, most importantly Germany" (See Wikipedia)
European Union (EU) - an economic and political union of 27 member states  located mostly in Europe (See Wikipedia)
Euro - the currency or money that the EU uses (See Wikipedia)
monetary union, currency union - when a group of countries use the same currency or money (See Wikipedia)
Economic and Monetary Union (EMU) -  when countries join together economically in two ways: 1. use the same currency, 2.  have one single market, zero tariffs (See Wikipedia)
the EMU of the EU - the countries of Europe which now share one unified market (without tariffs or trade barriers) and one common currency known as the "Euro" (See Wikipedia)
remote -
destiny - what will happen in the future to a person, organization or country (know one knows exactly yet)
destiny of X tied to Y - what will happen to X in the future depends on Y )
revenue-generating - makes money for a company
investment bank - (See Wikipedia)
UBS Investment Bank - part of the huge global financial services company UBS AG (See Wikipedia)

Economics
BY INVITATION

Why Asia needs to notice the Euro crisis

22/06/2010
Paul Donovan, Deputy Head for Global Economics at UBS Investment

The euro crisis has caused considerable volatility in financial markets. The euro area's equity markets have underperformed Asian, American and non-euro European markets like the UK and Switzerland. Euro bond markets have had a terrifying ride, with yields swinging wildly. The euro itself has lost value against most major currencies.

notice - to see and start thinking about something that happened สังเกต
considerable - large; of noticeable importance จำนวนมาก
volatility - a measure of risk in financial markets, the degree to which asset prices swing up and down (See The Economist and glossary) อัตราความเสี่ยงต่อการลงทุนทางการเงิน
equity - money for a business that comes from owners (stock shares), not borrowed money (debt) เงินลงทุน ที่มาจากการระดมหุ้นของหุ้นส่วน และผู้มีกรรมสิทธิ
bond - a formal contract to repay borrowed money with interest at fixed intervals, a paper certificate is issued much like a stock certiticate (See Wikipedia)
yield, yield of a bond -  the interest rate of the bond, the annual income from a bond expressed as a percentage of the current market price of the bond, the annual coupon of the bond divided by the market price of the bond (See The Economist glossary)
terrifying - extremely frightening; causing great fear น่าสะพรึงกลัว

What is the cause of all of this? Superficially it seems to be the Greek government debt. This reached levels that have caused investors to shun Greek bonds. Portugal and Spain have become a cause for concern too. Euro-area economies have had to offer large sums of financial assistance to Greece specifically, and create a slush fund of assistance for any other euro-area country that needs it. Even with this, Greece is likely to have to restructure its debt at some point in the coming years. 

debt - an amount of money that you owe หนี้
shun - to deliberately avoid a person, place or activity
concern - a worry ความกังวล
Euro-area economies - the member countries of the European Union which all use the "Euro" as their currency
assistance - help (given to someone)
specifically - in an exact and detailed way
fund - a collection of money for some purpose เงินทุน กองทุน
slush fund - money kept secretly for making illegal payments (here: is clearly not an illegal fund, perhaps a joke or casting the fund in a negative light)
restructure - to organise something such as a company in a different way so that it will operate better ปรับโครงสร้างใหม่
restructure debt - changing the terms of the loan when a borrower has a problem to make it easier to pay back
terms of a loan - the schedule of repayments and the interest paid for the amount borrowed (principal)

However, the fiscal problems of Greece and others are actually symptoms of a bigger problem. The euro does not work.

The euro area is not what economists call an optimal currency area. The whole point about a monetary union is that the economy is supposed to be sufficiently integrated that a common interest rate and exchange rate will be equally suitable for all. If one country has growth of +3% and one country has growth of -3%, it is going to be pretty hard for the central bank to come up with a single interest rate that is equally suitable. Inevitably, monetary policy in that scenario will fail one or other of the monetary union's members.

fiscal - connected with government spending and budget, i.e., public money เกี่ยวกับงบประมาณ
currency - a widely used the money accepted for exchange of goods in an economy เงินตรา (See Wikipedia)
integrated - combining things of different types in one effective system, working together as a unified whole ที่รวมเข้าด้วยกัน
common - shared by two or more people, organizations or countries ที่ร่วมกัน
interest - payments made for the use of another's money for a period of time
interest rate
rate - the level or speed at which something happens or changes, or the amount or number of times it happens or changes in a particular period อัตรา
suitable - right or acceptable for a situation เหมาะสม
pretty hard -
central bank -
single - one only ดี่ยว
policy - a set of plans or action agreed on by a government, political party, business, or other group นโยบาย
monetary policy
scenario - the way that a situation may develop in the future, description of possible events in the future

So, does the fact that the euro does not work mean that it is doomed to break up? No. Many monetary unions do not work. In a perfect world (where economists run everything), the United States would have not one but three currencies. However, in spite of the fact that the US monetary union does not work, it holds together. It holds together because policymakers compensate for the fact that it does not work. There is a fiscal union alongside the monetary union.

doomed - certain to fail, die or be destroyed ซึ่งถูกกำหนดไว้ว่าจะเกิดเรื่องไม่ดี
in spite of the fact that -
compensate - 

If a part of the monetary union is suffering weak growth (-3%, for instance) and monetary policy is unsuitable (interest rates are too high), then the negativetransfers economic effects can be compensated via fiscal transfers. The stronger growth area (the +3% economy) can pay taxes that go to fund spending in the weaker part of the monetary union.

suffering - having problems that make life difficult ความทุกข์ทรมาน
negative - bad ที่เป็นด้านลบ
transfers -
fiscal transfers

Today, tax dollars from New York pay for unemployment benefits for out-of-work Californians. Both parts of the US can thus share a common monetary policy without too many ill effects. It should be noted that the government of California does not get any of the cash. The cash goes straight to the people of California. The government can sink or swim on its own.

unemployment - the percentage of workers in the economy without a job who are actively seeking work (See Wikipedia) การว่างงาน
benefits - money, services, or goods you receive from a government or company programme เงินช่วยเหลือ
unemployment benefits -
share - to have or use something at the same time as someone else ใช้ร่วมกัน
ill effects -
cash - money in the form of notes or coins เงินสด
sink - to go below the surface of water จม
can sink or swim on its own -

Why does this matter? It matters because, if the euro is a dysfunctional monetary union, the solution to this problem is not going to happen overnight. As the euro area gropes towards a solution, it will continue to experience volatility and crises. The euro area probably will achieve a fiscal union, but not overnight (it took the US around 150 years to get it right. 

matter - something that you are discussing, considering, problems you are dealing with สิ่งที่พูดถึง ประเด็นที่พูดถึง
It matters -
Does this matter? -
dysfunctional - not normal, behaves abnormally
not going to happen overnight -
grope -
gropes towards a solution

While we are waiting for the euro area to sort itself out, there are several consequences. The euro as a currency is likely to remain weak. There is likely to be a flight to quality within the euro zone. Risk premiums are likely to rise. Finally, pressure for fiscal tightening is unlikely to abate.

sort itself out
consequences - the things that happen as a result of a decision or event
flight - run away from a place หนีออกไป
flight to quality within the euro zone -
premium
risk premiums
pressure - when people are being pushed or forced to so something
fiscal tightening
abate - to become less strong เบาบาง, ทำให้สิ้นสุด

This results in a double divergence. Strong economies benefit. The German economy is export-led, and gains from the weak euro. The flight to quality keeps bond yields low, lowering the funding cost for the German government. Weak economies, meanwhile suffer. Risk premiums raise funding costs. Economies that are uncompetitive have smaller export sectors, and benefit less from the lower euro. The need to tighten fiscal policy is more acute.

results - what is produced in the end by an activity or task
double - to become twice as big, twice as much or twice as many เพิ่มเป็นสองเท่า
divergence -
benefit - to get  advantage from something ผลประโยชน์
export-led economy -
weak euro -
funding - money to a program so it can operate
bond yields -
funding cost for the German government.
suffer - to experience problems and difficulties
acute - very serious เฉียบพลันและรุนแรง

As well as the strong-versus-weak divergence (which roughly corresponds to north versus south), there is the domestic-export divergence. Domestic economies (anywhere in the euro area) are likely to suffer more as a consequence of this crisis. Fiscal tightening means less domestic demand. Exports benefit from the weaker euro, however.

domestic - within the country ในประเทศ
demand - the need and desire to buy goods and services by households and businesses

The tendency for the euro area's economy to diverge means Asia can not ignore the euro crisis. The euro area consumes Asian exports. In some fields, euro economies compete with Asian economies for market share. Euro domestic demand is likely to be slower in the coming years. The weaker euro makes the euro area's exports relatively cheaper. Asia is going to have to struggle harder to sell to the euro area, and to sell in other markets where it competes against the euro area's companies.

tendency -
ignore - to not listen or give your attention to something ทำเพิกเฉย
struggle - a difficult fight or an attempt to defeat someone การต่อสู้เพื่อความอยู่รอด, การต่อสู้ดิ้นรน

This is not a remote crisis, but a challenge for Asia to meet. It is also a challenge that Asia will have to endure for some time. 

Paul Donovan is deputy head for global economics for UBS Investment Bank. 

remote - far away and not connected to anything important to us ไกล
challenge - something needing a lot of skill, energy and determination to deal with or achieve สิ่งท้าทาย
meet a challenge - achieve a difficult to achieve goal
endure - to suffer something difficult, unpleasant or painful อดทน
deputy - a person who is given the power to do something instead of another person, or the person whose rank is immediately below that of the leader of an organisation รอง, ตัวแทน,ผู้รักษาการแทน
global - throughout the world ทั่วโลก

(Source: Why Asia needs to notice the Euro crisis, Paul Donovan, UBS Investment Bank, 22/06/2010, link) 

Posted by Jon Fernquest at 06:34 AM | | Comments (0)


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