[yesterday saw two related desions by world leaders (a) to release 30m bbls from US strategic oil reserves (a move apparently ruled out by the International Energy Authority, the body set up in the 1970s to defend the west against Opec price hikes) and (b) to make concerted efforts to support the flagging value of the Euro, which has falled by more than a third since its launch last year. This is the first stage of attempts to engineer a soft landing for the world economy in the wake of recent oil and commodity price rises. Analysing policy formation in this very early stage of a profound crisis will yield clues as to the likely progress of events: Watch this space. Mark] Special report: Economic and Monetary Union Larry Elliott and Charlotte Denny in Prague Saturday September 23, 2000 A teleconference early yesterday morning between finance ministers and central bankers from the world's most powerful nations was the trigger for the long-awaited attempt to rescue the ailing euro. Talks had been going on for 48 hours after the European Central Bank decided that the fall in the single currency had gone too far and started to canvas support for intervention in the foreign exchange markets. The key was securing the agreement of the Americans, whom the markets believed would not be prepared to drive down the value of the dollar ahead of the US presidential elections in November. But once it was clear that Washington was prepared to play ball, the ECB could prepare its trap for the speculators. All that was left was to find the right moment to strike, and that came yesterday when the euro was already up against the dollar as a result of the weakening in the oil price and the disappointing figures from Intel, which suggested that the booming US economy might be slowing down rapidly. Intervention only really works when it is co-ordinated and goes with the grain of the market. With both conditions fulfilled, the first move was made at noon, with concerted purchases of euros and sales of dollars. The message was rammed home with a second bout of action 30 minutes later, and a third around 3pm. Markets were taken by surprise. It had been assumed that today's meeting in Prague of central bank governors and finance ministers from the seven leading industrialised nations would discuss the plight of the euro but offer only warm words rather than action. With less than 50 days to go before the presidential election, traders believed that the European Central Bank and the Bank of Japan would not go it alone. In fact, as the finance ministers packed their bags yesterday morning, they were preparing the strike. Central banks from all the G7 countries were involved - the first time since 1995 that they have coordinated an attack on the markets. "It gives them a justification to come to Prague and scoff lobster," said Nick Parsons, a currency expert at Commerzbank in London. Mr Parsons believe that Intel was the straw which broke the dollar's back. The announcement of its profits warning on Thursday night had wiped more than $100bn (�68bn) off its worth by midday yesterday and helped convince the markets that a strong dollar was no longer good for corporate America and the US economy. Over the past few weeks, there have been warnings from a host of big US firms that are seeing their export earnings to Europe severely hit by the strength of the dollar. While the US authorities were not prepared simply to help the euro, it was a completely different story once it was clear that America itself stood to gain from a weaker dollar. The risks are now twofold. On the one hand, the intervention might work too well, with a plunging dollar bringing down the US stock market and having knock-on effects around the globe. On the other, the intervention might be a red rag to the markets, tempting them to take on the authorities in a fight over the euro's value. The Bank of England knows all too well what can happen to a currency if you take on the markets and lose. _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
