EU preparing to protect currency, fight off “wolfpack”

The EU has decided it arbitrarily needs to protect the value of the euro.  Specifically:

We now see herd behavior in the markets that are really pack behavior, wolfpack behavior

Relevant picture:

Shirt source.

My question as a New Zealander who has experience the vicious swings in currency myself – why protect the value of the euro?  The euro is falling to help buffer the painful adjustment Europe is about to go through given their banking crisis, and they want to waste money trying to prevent this?  I don’t understand. Note: Krugman seems to feel a similar way.

7 replies
  1. Matt Nolan
    Matt Nolan says:

    “We now see herd behavior in the markets”

    “I don’t understand”

    The EU believes the market is over-reacting, following itself down. As a result, by betting against the market they hope to avoid this sort of herd behaviour – or else in the medium term make a lot of money. I don’t see what is hard to understand about this Matt.

  2. Matt Nolan
    Matt Nolan says:

    @Matt Nolan

    So you think the European authorities have sufficient foresight to make money on currency markets when they struggled to even properly deal with sovereign debt issues – seems like a steep value judgment to me.

    Don’t you think that maybe, just maybe, the market pricing in the currency markets is suggesting that the euro really is overvalued, and in order to keep the physical Euro Zone economies from collapsing the value of the euro relative to other countries should be lower – and furthermore should be accommodated by the ECB through an increase in money printing.

    I think you have moved too quickly to assume irrationality on the part of market participants without thinking through the fundamentals of the current crisis my friend.

  3. Matt Nolan
    Matt Nolan says:


    He was the one that tried to make fun of the fact I didn’t understand herd behaviour – without recognising that this may be an optimal reaction to the fact that Europe has a higher probability of recession.

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