Trading insights from top thought leaders
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Lars Seier Christensen
Co-CEO and co-founder of Saxo Bank
Saxo Capital Markets is proud to announce Based on these conversations, we have
the launch of the #TradingDebates White created the #TradingDebates White Papers –
Papers – Insights from Top Thought Leaders. a collection of articles and videos to help you
to identify new trading opportunities during
The ongoing crisis in the Eurozone, the quan- the next stage of the Eurozone crisis.
titative easing tapering debate in the US and
the growing conflict in the Middle East have We invite you to join the debate and share
all contributed to the heightened vola- your views with us.
tility we are experiencing in financial markets.
In response, Saxo gathered some of the top
thought leaders in the industry at Bloom-
berg’s European Headquarters in London on
September 13, 2013, to discuss the biggest
challenges facing the continent.
INTRODUCTION JOIN THE SAXO #TRADINGDEBATES SHARE THE EBOOK 2
#TradingDebates White Papers
Chapter 1: Chapter 6:
Merkel’s Lack Of Vision The Euro
Is The Achilles’Heel Of Europe 4 – A Currency With Nine Lives 27
By Lars Seier Christensen, co-CEO and co-founder, Saxo Bank A/S By John J. Hardy, Head of FX Strategy at Saxo Bank A/S
Chapter 2: Chapter 7:
Europe: The Shattering Of Illusions 9 Oil Markets
By Václav Klaus, former President of the Czech Republic – Let The Dust Settle 31
By Ole Hansen, Head of Commodity Strategy, Saxo Bank A/S
Is The UK Better Off Outside The EU? 13 Chapter 8:
By Nigel Farage, Leader of the UK Independence Party Confidence In Emerging Markets
Expected To Stage A Comeback 35
Chapter 4: By Mads Koefoed, Head of Macro Strategy, Saxo Bank, A/S
Is Merkel’s Victory
Europe’s Wake-Up Call 16 Chapter 9:
By Steen Jakobsen, Chief Economist and CIO, Saxo Bank A/S Europe’s Economic Foundation
Is On The Right Track 39
Chapter 5: By Peter Garnry, Head of Equity Strategy, Saxo Bank A/S
Has Quantitative Easing
Become An Embarrassment? Chapter 10:
By Nick Beecroft, Chairman and Senior Market Analyst at Saxo Capital Markets 21 Forward Guidance
– The Latest Fad 43
By Nick Beecroft, Chairman and Senior Market Analyst at Saxo Capital Markets
CONTENT JOIN THE SAXO #TRADINGDEBATES SHARE THE EBOOK 3
OF VISION IS THE
LARS SEIER CHRISTENSEN
Europe’s piecemeal approach to policy has
yielded few positive results.
High unemployment and low growth continue
to fuel social unrest in southern Europe, while
there are signs of cracks throughout
the Eurozone. The whole European project,
it is argued, is just one bad election
away from a serious wake-up call.
MERKEL’S LACK OF VISION IS THE ACHILLES’ HEEL OF EUROPE JOIN THE SAXO # FX DEBATES SHARE THE EBOOK 4
Merkel’s Lack of Vision
is the Achilles’ Heel of Europe
Lars Seier Christensen
“I, for one, believe a
more rational approach
I have met a number of politicians over the years, but lately it has dawned
on me that very few of them are seriously prepared to stand up for their beliefs,
could have saved us
if indeed they have any.
I can just about recall a time long ago when things were slightly different; nowadays, politics is
from the mess we are
all about solving day-to-day problems and following opinion polls on what voters are prepared
to tolerate, rather than leadership and fundamental personal integrity. Ideologies and courage
have been consigned to the past and, as I see it, Europe’s Achilles’ heel is German Chancellor
in, but declaring that
Angela Merkel, the de facto leader of the EU, and her lack of vision for the single-currency bloc.
Merkel’s lack of vision stands as a striking contrast to the emotional feelings that dominated
the EU should be
winning the global
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, but
declaring that the EU should be winning the global economic race, which is one reason why
Germany wants to keep Britain in the EU, is not a vision. It’s a rational goal I support, but one
we won’t reach unless we come up with a new, realistic vision for Europe in the 21st century.
When Saxo Bank opened its new office in Prague in May 2009, my staff request-
economic race, which
ed a private meeting with then President Václav 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.
is one reason why
Since the fall of the Iron Curtain – and even long before that and under particularly difficult
circumstances – Václav Klaus has been a beacon for freedom and for confronting state abuse
Germany wants to keep
Britain in the EU, is not
and injustice. President Klaus is a man well worth meeting if you believe in liberalism and capi-
talism, as I do.
MERKEL’S LACK OF VISION IS THE ACHILLES’ HEEL OF EUROPE JOIN THE SAXO #TRADINGDEBATES SHARE THE EBOOK 5
“There was no shortage of
warning voices in the final days of Nein
the creation of the Economic and
Monetary Union. But even if it was
obvious for some, the European
heads of state and government chose
to get the project started with a
foundation as weak as a sandcastle
on a beach.” 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 facing
the EU beyond any comparison – the problem at the root of all other problems and the reason
why 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 it
in Danish and promote it wherever I could.
The book discusses the institutional developments in Europe from the Second World War to
the Eurozone debt crisis and it assesses the current phase of instability, which he calls “the
interim 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 vision
for our continent.
The idea of a common currency in Europe goes way back, even before the European Economic
Community (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 Werner
Report in 1970 finally put it on the agenda of the EEC.
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Even though the euro is at the root of most
“By joining a common currency, of the EU’s problems, the idea of a common
currency is impressive, ambitious and logical
countries waive some of the – in a best-case scenario. If you can create
a comprehensive economic and monetary
important tools that their national union with a population bigger than that of
the US, then that would also be reflected by
central banks normally would have the international political power. One should
not underestimate the fact that more political
at their disposal.” influence had been a dream for European
politicians for decades. As in many other
aspects of the EU, large parts of the common
currency project were driven by European
politicians’ feeling of inferiority compared
with the US and Russia and later, the real or
potential superpowers like China, India and
the Middle East. of people in France believe European
economic integration has made things worse
The central problem, however, was that the for the country, an increase of 14 points
majority of European citizens did not have any since last year.
desire to create a political union, which must
Source: Pew Global Research
be the foundation for a monetary union.
The citizens of wealthy countries did not
want to give up their national identity and tion for a well-functioning common currency.
did not want to see their economic achieve- There was no shortage of warning voices in
ments become part of a collective pool. In this the final days of the creation of the Economic
construction, solidarity with poorer countries and Monetary Union. But even if it was obvi-
cemented their position as permanent con- ous for some, the European heads of state
tributors. and government chose to get the project
started with a foundation as weak as
Not surprisingly, the greatest enthusiasm for a sandcastle on a beach.
this proposition has been expressed
by economically weaker countries. They saw They did this, expecting to be covered by an
considerable advantages in such a system, but extra appropriation bill, or – as it turned out
without being ready to throw their national later – with a hidden agenda, by creating this
states or traditional policies overboard. But foundation piece by piece, without caring
the EU is not a horn of plenty from which all much to ask the European populations.
the wealth just keeps coming without the That process is also being continued re-
need to demonstrate one deserves to be on lentlessly in countries like Denmark, which
the receiving end. are not even members of the Eurozone.
The European politicians knew well enough
that a foundation in the shape of a political
and financial union was a necessary precondi-
MERKEL’S LACK OF VISION IS THE ACHILLES’ HEEL OF EUROPE JOIN THE SAXO #TRADINGDEBATES SHARE THE EBOOK 7
But politicians just want a more wide-ranging integration than many citizens are ready for. which was revealed in a Gallup and Pew Research Center poll in May 2013. When former
To be loyal towards the rulers in Brussels and disloyal towards your own population often equals European Commission president Jacques Delors, who presided over the creation of the euro,
a great job and plenty of distinctions and stars, along with the illusion of political significance regaled a Socialist gathering the following month, he attacked what he called a “punitive and
among your friends. alienating” Europe.
But what is the true problem with a common currency when it sounds so practical and Merkel’s Europe is not punitive and alienating. It’s fair. She wants the EU member states
meaningful to avoid exchange expenses and rate risks, and when it created a strong central to follow the rules and ensure Europe becomes more competitive. She is a problem solver and
bank that could play an international role? By joining a common currency, countries waive some there’s nothing wrong with solving concrete problems. However, politics is also about declaring
of the important tools that their national central banks normally would have at their disposal. new ideas and visions. It’s about setting an agenda instead of following a popular sentiment.
The most obvious tool is the option to adjust currency rates either through devaluation or re- Merkel has yet to do that. But Germans were clearly in no mood for change and Merkel won
valuation, or to leave the rates to the financial markets, which is the norm for most other asset the election on September 22. As the de facto leader of the EU, its future and disaster currency
classes. will be determined by this former research chemist.
The second important tool is the option to adjust economic trends by short-term interest rates. As I see it, the research is done. The verdict is out. We have to re-evaluate the EU.
Both of these adjustment triggers are critically important and their absence carries the seed
of potential disaster for any area or country if there is no agreement that the occurrence of
inequalities can be regulated in a different way. This could be common bonds, fiscal transfers
and so on – just think of what happens within national states. Lolland for example, an island in Decline in Support for the European Project
Denmark, would be in dire straits if it had to find financing for projects in international markets.
But as a fully integrated part of Denmark and with national money transfers, its problems are Economic integration, Favourable of EU
being resolved smoothly. strengthened economy
If you imagine a Europe constructed as a national state, many of the problems would 2012 2013 Change 2012 2013 Change
be resolved – although the overall economy hardly would be something to brag about. But it
requires 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 responsibility
as Denmark with a weaker area in its national state. Germany 59 54 -5 68 60 -8
We are far from having achieved this situation. In addition, the movement of products, services Britain 30 26 -4 45 43 -2
and 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 difficult task in France 36 22 -14 60 41 -19
a European context.
Italy 22 11 -11 59 58 -1
Merkel’s mentor, Helmut Kohl, the great re-unification chancellor, believed one could draw
a political line under Europe’s fractured history, with economics playing a much lesser role. Spain 46 37 -9 60 46 -14
“Das Mädchen”, as Kohl used to call her, lacks this naïve approach to the EU. She is definitely
not a girl any more, but has developed a very pragmatic approach to the EU and for that reason Greece 18 11 -7 37 33 -4
socialistic France calls her “Madame Non”.
Poland 48 41 -7 69 68 -1
Merkel has said “nein” to centralised EU economic governance, a permanent bailout mechanism
and the idea of euro bonds, which she called “economically wrong and counterproductive”. Czech Rep. 31 28 -6 60 45 -15
Her handling of the euro crisis explains the French disenchantment with Europe,
Median 34 28 -6 60 45 -25
Source: Pew Global Research
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