LIQUIDITY ANALYSIS. WHEN IT COMES TO LIQUIDITY, SIZE MATTERS
[Latest Endogenous Liquidity Index: -65.3%; Latest Global Dollar Liquidity measure: +29.6%]
As the Belgian bank giant Fortis collapses, citizens of that country appreciate the bonheur of belonging to the eurozone. Had it not been for the euro, Belgium would have devalued and sharply increased interest rates — just as Iceland was forced to do. The banking and financial crisis is quickly changing perceptions. Across Europe, there is a bit of a scramble to join the euro. Politicians from Scandinavia to Eastern Europe, fearful of the abyss, are re-evaluating the wisdom of going it alone (Denmark, Sweden, Norway) or postponing structural reform (Hungary, Poland). Brazil and Mexico have secured a swap line from the Federal Reserve Bank. When it comes to liquidity conditions, size seems to matter after all (*).
(*) See the very good piece by Wolgang Münchau: "Now they see the benefits of the eurozone", Financial Times.