In the global currency war, the Bank of Japan intervened in the currency market, the Federal Reserve conducted a second round of quantitative easing (QE2), and China continued to suppress the value of the yuan.
Although the European Central Bank (ECB) may appear to be the only innocent party, it's possible that France and Germany, the two leading countries of the euro zone, actually engineered a competitive currency devaluation of their own.
In late October, Germany and France announced they wanted the private sector to share the cost of future bailouts. Basically, they were asking holders of bonds issued by the peripheral euro zone nations to take on more losses in the future.
This spooked investors because many of them had bought peripheral European debt not based on the underlying country's ability to pay, but on the assumption of financial backing from French and German taxpayers.
Since the announcement, the European sovereign debt crisis came back in full force, Ireland was forced to take a bailout, and Portugal is eyed as the next victim.
And whether or not this was Germany's and France's intention, the euro halted its rally and began falling against the U.S. dollar and Chinese yuan.
Many experts, including ECB President Jean-Claude Trichet, were critical of Germany's and France's controversial suggestion and warned it would cause a sell-off in peripheral European bonds, trigger a crisis, and thus become a self-fulfilling prophecy.
Experts are also puzzling over their motives.
One camp thinks German and French politicians just don't understand markets.
Given the vulnerability of so many euro zone countries, it appears that [German Chancellor Angela Merkel] does not understand the immediate implications of her plan, said Simon Johnson of the Peterson Institute.
Others think they are too ideological or stubborn.
In an ideal world, [this] proposal to have investors, and not only citizens, suffer the consequences of their investment decisions is both fair and rational. Yet...there is a good chance that in real life the eurozone could be killed...by this proposal, said José Ignacio Torreblanca of the European Council on Foreign Relations.
Another explanation is that Germany and France are just responding to the understandable public backlash against taxpayer-financed bailouts for banks and indebted countries, said Johnson.
However, the real reason behind this move may be more calculated and cunning.
Germany and France want the EUR/USD to remain weak so that they can continue to export their way to growth, said Douglas Borthwick, managing director of Faros Trading in Stamford, Conn.
The euro is down 14 percent against the dollar over the course of the year, and down 16 percent against the Chinese Yuan. There is little wonder that German and French exports have risen over the course of 2010, he said.
The annoucement of the plan for private investors to share the bailout cost in the future, then, could be a deliberate move to weaken the euro, said Borthwick.
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