Saxo Capital Markets #Trading Debates White Papers

7/27/2019 Saxo Capital Markets #Trading Debates White Papers

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#TRADINGDEBATES

WHITE PAPERSTrading insights rom top thought leaders

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Introduction

Lars Seier ChristensenCo-CEO and co-founder of Saxo Bank

Saxo Capital Markets is proud to announcethe launch of the #TradingDebates WhitePapers Insights from Top Thought Leaders.

The ongoing crisis in the Eurozone, the quan-titative easing tapering debate in the US andthe growing conict in the Middle East have

all contributed to the heightened vola-tility we are experiencing in nancial markets.

In response, Saxo gathered some of the topthought leaders in the industry at Bloom-bergs European Headquarters in London onSeptember 13, 2013, to discuss the biggestchallenges facing the continent.

Based on these conversations, we havecreated the #TradingDebates White Papers a collection of articles and videos to help youto identify new trading opportunities duringthe next stage of the Eurozone crisis.

We invite you to join the debate and share

your views with us.

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Content#TradingDebates White Papers

Chapter 1:Merkels Lack O VisionIs The AchillesHeel O EuropeBy Lars Seier Christensen, co-CEO and co-founder, Saxo Bank A/S

Chapter 2:Europe: The Shattering O IllusionsBy Vclav Klaus, former President of the Czech Republic

Chapter 3:Is The UK Better O Outside The EU?By Nigel Farage, Leader of the UK Independence Party

Chapter 4:Is Merkels VictoryEuropes Wake-Up CallBy Steen Jakobsen, Chief Economist and CIO, Saxo Bank A/S

Chapter 5:Has Quantitative EasingBecome An Embarrassment?By Nick Beecroft, Chairman and Senior Market Analyst at Saxo Capital Markets

Chapter 6:The Euro

A Currency With Nine LivesBy John J. Hardy, Head of FX Strategy at Saxo Bank A/S

Chapter 7:Oil Markets

Let The Dust SettleBy Ole Hansen, Head of Commodity Strategy, Saxo Bank A/S

Chapter 8:Confdence In Emerging MarketsExpected To Stage A ComebackBy Mads Koefoed, Head of Macro Strategy, Saxo Bank, A/S

Chapter 9:Europes Economic FoundationIs On The Right TrackBy Peter Garnry, Head of Equity Strategy, Saxo Bank A/S

Chapter 10:Forward Guidance

The Latest FadBy Nick Beecroft, Chairman and Senior Market Analyst at Saxo Capital Markets

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MERKELS LACK

OF VISION IS THEACHILLES HEELOF EUROPE

CHAPTER 1

LARS SEIER CHRISTENSEN

Europes piecemeal approach to policy hasyielded few positive results.High unemployment and low growth continueto fuel social unrest in southern Europe, whilethere are signs of cracks throughoutthe Eurozone. The whole European project,it is argued, is just one bad electionaway from a serious wake-up call.

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Merkels Lack o Visionis the Achilles Heel o Europe

Lars Seier Christensen I, or one, believe a

more rational approach

could have saved us

rom the mess we are

in, but declaring that

the EU should be

winning the globaleconomic race, which

is one reason why

Germany wants to keep

Britain in the EU, is nota vision.

I have met a number of politicians over the years, but lately it has dawnedon me that very few of them are seriously prepared to stand up for their beliefs,if indeed they have any.

I can just about recall a time long ago when things were slightly different; nowadays, politics isall about solving day-to-day problems and following opinion polls on what voters are preparedto tolerate, rather than leadership and fundamental personal integrity. Ideologies and couragehave been consigned to the past and, as I see it, Europes Achilles heel is German ChancellorAngela Merkel, the de facto leader of the EU, and her lack of vision for the single-currency bloc.

Merkels lack of vision stands as a striking contrast to the emotional feelings that dominated

much of post-war European political thinking.

I, for one, believe a more rational approach could have saved us from the mess we are in, butdeclaring that the EU should be winning the global economic race, which is one reason whyGermany wants to keep Britain in the EU, is not a vision. Its a rational goal I support, but onewe wont reach unless we come up with a new, realistic vision for Europe in the 21st century.When Saxo Bank opened its new ofce in Prague in May 2009, my staff request -ed a private meeting with then President Vclav Klaus. Our application was grant-ed and, a few months later, we sat in a car en route to the beautiful presidential palace,with its air of faded grandeur.

Since the fall of the Iron Curtain and even long before that and under particularly difcultcircumstances Vclav Klaus has been a beacon for freedom and for confronting state abuseand injustice. President Klaus is a man well worth meeting if you believe in liberalism and capi-

talism, as I do.

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Nein

Nein

Nein

During our meeting, we discussed the Eurozone sovereign debt crisis that was well under way,although few had noticed at that point. We agreed that the biggest practical challenge facingthe EU beyond any comparison the problem at the root of all other problems and the reasonwhy the EU is moving in the direction of economic disaster and increasingly seems to be ne-glecting the democratic process is the common currency: the euro.

When the President last year published his English edition of Europe The Shattering of Illu-sions about his frustrations with the current situation in Europe, I did not hesitate to publish itin Danish and promote it wherever I could.

The book discusses the institutional developments in Europe from the Second World War tothe Eurozone debt crisis and it assesses the current phase of instability, which he calls theinterim phase. It is essential reading for anyone who cares for Europe, as I do.President Klaus main point is that if Europe wants to restart its economic development, it has

to undertake a fundamental transformation and for that to happen, we need a bold new visionfor our continent.

The idea of a common currency in Europe goes way back, even before the European EconomicCommunity (EEC). It was discussed before the Second World War by the League of Nations,the predecessor of the United Nations. Back then, it was just a grandiose vision. The WernerReport in 1970 nally put it on the agenda of the EEC.

There was no shortage o

warning voices in the fnal days o

the creation o the Economic and

Monetary Union. But even i it was

obvious or some, the Europeanheads o state and government chose

to get the project started with a

oundation as weak as a sandcastle

on a beach.



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Even though the euro is at the root of mostof the EUs problems, the idea of a commoncurrency is impressive, ambitious and logical in a best-case scenario. If you can createa comprehensive economic and monetaryunion with a population bigger than that ofthe US, then that would also be reected bythe international political power. One should

not underestimate the fact that more politicalinuence had been a dream for Europeanpoliticians for decades. As in many otheraspects of the EU, large parts of the commoncurrency project were driven by Europeanpoliticians feeling of inferiority comparedwith the US and Russia and later, the real orpotential superpowers like China, India andthe Middle East.

The central problem, however, was that themajority of European citizens did not have anydesire to create a political union, which must

be the foundation for a monetary union.The citizens of wealthy countries did notwant to give up their national identity anddid not want to see their economic achieve-ments become part of a collective pool. In thisconstruction, solidarity with poorer countriescemented their position as permanent con-tributors.

Not surprisingly, the greatest enthusiasm forthis proposition has been expressedby economically weaker countries. They sawconsiderable advantages in such a system, butwithout being ready to throw their national

states or traditional policies overboard. Butthe EU is not a horn of plenty from which allthe wealth just keeps coming without theneed to demonstrate one deserves to be onthe receiving end.

The European politicians knew well enoughthat a foundation in the shape of a politicaland nancial union was a necessary precondi-

77%of people in France believe Europeaneconomic integration has made things worsefor the country, an increase of 14 pointssince last year.

By joining a common currency,

countries waive some o the

important tools that their national

central banks normally would haveat their disposal.

tion for a well-functioning common currency.There was no shortage of warning voices inthe nal days of the creation of the Economicand Monetary Union. But even if it was obvi-ous for some, the European heads of stateand government chose to get the projectstarted with a foundation as weak asa sandcastle on a beach.

They did this, expecting to be covered by anextra appropriation bill, or as it turned outlater with a hidden agenda, by creating this

foundation piece by piece, without caringmuch to ask the European populations.That process is also being continued re-lentlessly in countries like Denmark, whichare not even members of the Eurozone.

Source: Pew Global Research

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Decline in Support for the European Project

Source: Pew Global Research

2012 2013 Change 2012 2013 Change

% % % %

Germany 59 54 -5 68 60 -8

Britain 30 26 -4 45 43 -2

France 36 22 -14 60 41 -19

Italy 22 11 -11 59 58 -1

Spain 46 37 -9 60 46 -14

Greece 18 11 -7 37 33 -4

Poland 48 41 -7 69 68 -1

Czech Rep. 31 28 -6 60 45 -15

Median 34 28 -6 60 45 -25

Economic integration,

strengthened economy

Favourable of EU

But politicians just want a more wide-ranging integration than many citizens are ready for.To be loyal towards the rulers in Brussels and disloyal towards your own population of ten equalsa great job and plenty of distinctions and stars, along with the illusion of political signicanceamong your friends.

But what is the true problem with a common currency when it sounds so practical andmeaningful to avoid exchange expenses and rate risks, and when it created a strong centralbank that could play an international role? By joining a common currency, countries waive some

of the important tools that their national central banks normally would have at their disposal.The most obvious tool is the option to adjust currency rates either through devaluation or re-valuation, or to leave the rates to the nancial markets, which is the norm for most other assetclasses.

The second important tool is the option to adjust economic trends by short-term interest rates.Both of these adjustment triggers are critically important and their absence carries the seedof potential disaster for any area or country if there is no agreement that the occurrence ofinequalities can be regulated in a different way. This could be common bonds, scal transfersand so on just think of what happens within national states. Lolland for example, an island inDenmark, would be in dire straits if it had to nd nancing for project s in international markets.But as a fully integrated part of Denmark and with national money transfers, its problems arebeing resolved smoothly.

If you imagine a Europe constructed as a national state, many of the problems wouldbe resolved although the overall economy hardly would be something to brag about. But itrequires former independent national states to accept the same role as a little Danish island,while the more prosperous areas in Europe must be willing to take on the same responsibilityas Denmark with a weaker area in its national state.

We are far from having achieved this situation. In addition, the movement of products, servicesand labour cannot be compared with how this is done within the borders of a national state.Language, education, culture and geographical distances make it a much more difcult task ina European context.

Merkels mentor, Helmut Kohl, the great re-unication chancellor, believed one could drawa political line under Europes fractured history, with economics playing a much lesser role.

Das Mdchen, as Kohl used to call her, lacks this nave approach to the EU. She is denitelynot a girl any more, but has developed a very pragmatic approach to the EU and for that reasonsocialistic France calls her Madame Non.

Merkel has said nein to centralised EU economic governance, a permanent bailout mechanismand the idea of euro bonds, which she called economically wrong and counterproductive.Her handling of the euro crisis explains the French disenchantment with Europe,

which was revealed in a Gallup and Pew Research Center poll in May 2013. When formerEuropean Commission president Jacques Delors, who presided over the creation of the euro,regaled a Socialist gathering the following month, he attacked what he called a punitive andalienating Europe.

Merkels Europe is not punitive and alienating. Its fair. She wants the EU member statesto follow the rules and ensure Europe becomes more competitive. She is a problem solver andtheres nothing wrong with solving concrete problems. However, politics is also about declaring

new ideas and visions. Its about setting an agenda instead of following a popular sentiment.Merkel has yet to do that. But Germans were clearly in no mood for change and Merkel wonthe election on September 22. As the de facto leader of the EU, its future and disaster currencywill be determined by this former research chemist.

As I see it, the research is done. The verdict is out. We have to re-evaluate the EU.


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Saxo Capital Markets #Trading Debates White Papers