Euro’s slide reignite talk of ‘currency war’

Updated 05 April 2015

Euro’s slide reignite talk of ‘currency war’

PARIS: The euro's slide against the dollar has reignited talk of a "currency war", with analysts in opposing camps over whether or not countries are consciously playing with their exchange rates.
War language is no stranger to modern monetary policy.
The massive bond buying programs, or quantitative easing (QE), that central banks have used in response to the financial and economic crises that have rocked the global economy since 2008 are often referred to as a bazooka.
After lowering interest rates, sometimes to zero or even into negative territory, major central banks turned to buying government and corporate bonds to stimulate the economy.
First tried by Japan in 2001 to combat deflation, the US Federal Reserve began using it in 2008 to respond to the financial market crisis and pull the US economy out of recession.
Japan used QE with more success in 2013 after Shinzo Abe came to power, and the European Central Bank joined the party in March. But central banks fired this bazooka as governments had little they could do.
"We are really in a situation where monetary policy has substituted for budgetary policy" as "the governments don't have any more budgetary margin for maneuver," said Saxo Banque economist Christopher Dembik.
And the bazooka wasn't directly aimed at exchange rates.
The bond purchases inject money into the economy, thus addressing any concerns about market liquidity. To the extent the funds result in new investments in the real economy it stimulates growth, another aim of QE policies.
But some funds end up leaving the country as investors seek better returns elsewhere. This pushes the value of the currency down, which is also not an unwelcome effect for policymakers as this favors more exports of goods and services and thus growth.
"The currency weapon is rarely the official objective," said Patrick Jacq, a bonds specialist at BNP Paribas bank.
Led by Brazil, developing countries charged that the US QE program was a first shot in a currency war because their economies suffered as exports slumped thanks to the weak dollar.
Those complaints were brushed aside with commitments by the leading economies to "market-determined exchange rates".
But public comments from elected officials about currency values often muddy the waters about policy objectives, even if central banks in most major economies are independent.
Lowering a currency's value may not be the stated policy objective "but they are thinking it so loudly all the world hears it," said Rene Desfossez, a bonds specialist at Natixis investment bank.


Taps and reservoirs run dry as Moroccan drought hits farmers

Updated 22 October 2020

Taps and reservoirs run dry as Moroccan drought hits farmers

  • The problems caused by increasingly erratic rainfall and the depletion of groundwater are growing every year in Morocco

RABAT: Two years of drought have drained reservoirs in southern Morocco, threatening crops the region relies on and leading to nightly cuts in tap water for an area that is home to a million people.

In a country that relies on farming for two jobs in five and 14 percent of its gross domestic product (GDP), the problems caused by increasingly erratic rainfall and the depletion of groundwater are growing every year.

In the rich citrus plantations of El-Guerdan, stretching eastward from the southern city of Agadir, more than half of farmers rely on two dams in the mountains of Aoulouz, 126 km away, to irrigate their trees.

However, that water has been diverted to the tourist hub of Agadir, where mains water has been cut to residential areas every night since Oct. 3 to ensure taps in households did not run entirely dry.

“The priority should go to drinking water,” Agriculture Minister Aziz Akhannouch said in parliament last week.

In El-Guerdan, Youssef Jebha’s crop of clementine oranges has been compromised by reduced water supply, he said, which affects both the quality of fruit and the size of the harvest.

“The available ground water is barely enough to keep the trees alive,” said Jebha, who is head of a regional farmers’ association.

“Saving Agadir should not be at the expense of El-Guerdan farmers,” he added, speaking by phone.

‘We hope for rain’

El-Guerdan is not alone in facing drought. Morocco’s harvest of cereals this year was less than half that of 2019, meaning hundreds of millions of dollars of extra import costs.

Despite lower production, Moroccan exports of fresh produce have risen this year by 8 percent. 

Critics of the government’s agricultural policy say such sales are tantamount to exporting water itself, given the crops use up so many resources.

A report by Morocco’s social and environmental council, an official advisory body, warned that four-fifths of the country’s water resources could vanish over the next 25 years.

It also warned of the risks to social peace due to water scarcity. In 2017, 23 people were arrested after protests over water shortages in the southeastern city of Zagora.

In January the government said it would spend $12 billion on boosting water supply over the next seven years by building new dams and desalination plants.

One $480 million plant, with a daily capacity of 400,000 cubic meters, is expected to start pumping in March, with the water divided between residential areas and farms.

Until then, “We hope for rain,” the agriculture minister said in parliament.

In El-Guerdan, the farmers are digging for water. A new well costs $20,000-30,000. However, “there is no guarantee water can be found due to the depletion of ground reserves,” said Ahmed Bounaama, another farmer.