Putin's a Smart Guy: Worry About $, Not €

Anglophone economic commentary about the euro usually veers towards the "I told you so" variety, nevermind that no one has actually wanted out of the EMU while many are still lining up to join it--including the most economically progressive economy that's still out of it. British Euroskeptic dyspeptics and their American wannabe counterparts aside, many recognize that the potential fallout from the US dollar is far greater given that it (unfortunately) is of more systemic consequence than the euro. Moreover, whoever said that being in a currency union absolves anyone of responsible economic stewardship? EMU members understood that they could no longer avail of devaluation strategies favoured by certain other countries (even though no one has ever devalued their way to prosperity).

So, it is refreshing to hear Vladimir Putin raise a concern many of us from the developing world have. Earlier on he was spot-on in describing the United States as a parasite on the world economy. Now he provides another good insight along similar lines: As far as we can tell, the Eurozone is getting serious about reining in fiscal deficits and whatnot...

"I am heartened by the approach of the European Commission, with whom we rarely agree, and of the key eurozone countries, to how they plan to resolve the problems they face," Putin said at a press conference at the end of the two-day summit of the Group of 20 powers in Los Cabos, Mexico. "We can expect the situation to change for the better, although institutional reasons of the crisis are still there," he said.

...whereas the United States is not, cannot, and will not...

But the Russian leader lamented the lack of clarity on the future of the US dollar, which makes for a sizeable share of Russia's reserves, after US elections in November. "If we keep (half of reserves) in dollars and US bonds, we would like to know what will happen with the dollar after the US presidential elections," the Russian leader said. "Their debt is 15 trillion!" he added with a bewildered pause. "What will happen with the world's main reserve currency? What should we prepare for? These are the questions that should be at the center of attention of the G20." 

For whatever character flaws you may ascribe to Putin, it makes eminent sense to rely less on the dollar as a reserve and vehicle currency when it is structurally biased towards devaluation (whereas the inflation-averse ECB's euro has always been biased towards revaluation). Hence the legitimacy of the earlier "parasite" claim wherein others are effectively being forced to hold detestable dollar-denominated detritus. The G20 or whomever should come to a sensible move to shift towards other alternatives: a basket of currencies or regional alternatives alike the yuan in the Asia-Pacific. Otherwise, we are all just waiting to go the way of progress-free America and its currency.

After all, the bigger they are, the harder they fall.