The #TradingDebates White Papers from Saxo Capital Markets are a comprehensive overview of the successful event held in September at Bloomberg’s European headquarters in London, where eminent thought leaders from the financial and political world debated and discussed the Euro Crisis. Speakers included Nigel Farage, Václav Klaus and Lars Seier Christensen, and their opinion pieces are available to read in the White Papers, along with expert advice on trading in the current financial market from Saxo’s analysts. This is just an excerpt of the #TradingDebates White Papers and you can continue to read this content as well as discovering insights on the oil markets, forward guidance, QE and emerging markets to name just a few of the topics covered, by downloading the complete #TradingDebates White Papers at www.tradingdebates.com.

1. #TRADINGDEBATES
WHITE PAPERS
Trading insights from top thought leaders
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2. Introduction
Lars Seier Christensen
Co-CEO and co-founder of Saxo Bank
Saxo Capital Markets is proud to announce
the launch of the #TradingDebates White
Papers – Insights from Top Thought Leaders.
The ongoing crisis in the Eurozone, the quan-
titative easing tapering debate in the US and
the growing conflict in the Middle East have
all contributed to the heightened vola-
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.
Based on these conversations, we have
created the #TradingDebates White Papers –
a collection of articles and videos to help you
to identify new trading opportunities during
the next stage of the Eurozone crisis.
We invite you to join the debate and share
your views with us.
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3. Content
#TradingDebates White Papers
Chapter 1:
Merkel’s Lack Of Vision
Is The Achilles’Heel Of Europe
By Lars Seier Christensen, co-CEO and co-founder, Saxo Bank A/S
Chapter 2:
Europe: The Shattering Of Illusions
By Václav Klaus, former President of the Czech Republic
Chapter 3:
Is The UK Better Off Outside The EU?
By Nigel Farage, Leader of the UK Independence Party
Chapter 4:
Is Merkel’s Victory
Europe’s Wake-Up Call
By Steen Jakobsen, Chief Economist and CIO, Saxo Bank A/S
Chapter 5:
Has Quantitative Easing
Become An Embarrassment?
By Nick Beecroft, Chairman and Senior Market Analyst at Saxo Capital Markets
Chapter 6:
The Euro
– A Currency With Nine Lives
By John J. Hardy, Head of FX Strategy at Saxo Bank A/S
Chapter 7:
Oil Markets
– Let The Dust Settle
By Ole Hansen, Head of Commodity Strategy, Saxo Bank A/S
Chapter 8:
Confidence In Emerging Markets
Expected To Stage A Comeback
By Mads Koefoed, Head of Macro Strategy, Saxo Bank, A/S
Chapter 9:
Europe’s Economic Foundation
Is On The Right Track
By Peter Garnry, Head of Equity Strategy, Saxo Bank A/S
Chapter 10:
Forward Guidance
– The Latest Fad
By Nick Beecroft, Chairman and Senior Market Analyst at Saxo Capital Markets
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39
43
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4. MERKEL’S LACK
OFVISION IS THE
ACHILLES’ HEEL
OF EUROPE
CHAPTER 1
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.
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5. Merkel’s Lack of Vision
is the Achilles’ Heel of Europe
Lars Seier Christensen
“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.”
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,
if indeed they have any.
I can just about recall a time long ago when things were slightly different; nowadays, politics is
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
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
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-
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.
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
and injustice. President Klaus is a man well worth meeting if you believe in liberalism and capi-
talism, as I do.
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6. 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 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.
“There was no shortage of
warning voices in the final days of
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.”
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7. Even though the euro is at the root of most
of the EU’s problems, the idea of a common
currency is impressive, ambitious and logical
– in a best-case scenario. If you can create
a comprehensive economic and monetary
union with a population bigger than that of
the US, then that would also be reflected by
the international political power. One should
not underestimate the fact that more political
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.
The central problem, however, was that the
majority of European citizens did not have any
desire to create a political union, which must
be the foundation for a monetary union.
The citizens of wealthy countries did not
want to give up their national identity and
did not want to see their economic achieve-
ments become part of a collective pool. In this
construction, solidarity with poorer countries
cemented their position as permanent con-
tributors.
Not surprisingly, the greatest enthusiasm for
this proposition has been expressed
by economically weaker countries. They saw
considerable advantages in such a system, but
without being ready to throw their national
states or traditional policies overboard. But
the EU is not a horn of plenty from which all
the wealth just keeps coming without the
need to demonstrate one deserves to be on
the receiving end.
The European politicians knew well enough
that a foundation in the shape of a political
and financial union was a necessary precondi-
77%of people in France believe European
economic integration has made things worse
for the country, an increase of 14 points
since last year.
“By joining a common currency,
countries waive some of the
important tools that their national
central banks normally would have
at their disposal.”
tion for a well-functioning common currency.
There was no shortage of warning voices in
the final days of the creation of the Economic
and Monetary Union. But even if it was obvi-
ous 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.
They did this, expecting to be covered by an
extra appropriation bill, or – as it turned out
later – with a hidden agenda, by creating this
foundation piece by piece, without caring
much to ask the European populations.
That process is also being continued re-
lentlessly in countries like Denmark, which
are not even members of the Eurozone.
Source: Pew Global Research
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8. 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 often equals
a great job and plenty of distinctions and stars, along with the illusion of political significance
among your friends.
But what is the true problem with a common currency when it sounds so practical and
meaningful to avoid exchange expenses and rate risks, and when it created a strong central
bank 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 financial markets, which is the norm for most other asset
classes.
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 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
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
being resolved smoothly.
If you imagine a Europe constructed as a national state, many of the problems would
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.
We are far from having achieved this situation. In addition, the movement of products, services
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
a European context.
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.
“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
socialistic France calls her “Madame Non”.
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”.
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 former
European 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 and
alienating” Europe.
Merkel’s Europe is not punitive and alienating. It’s fair. She wants the EU member states
to follow the rules and ensure Europe becomes more competitive. She is a problem solver and
there’s nothing wrong with solving concrete problems. However, politics is also about declaring
new ideas and visions. It’s 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 won
the election on September 22. As the de facto leader of the EU, its future and disaster currency
will 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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