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[size=150:203v0k1i]Here’s how the euro could collapse –
by Max Julius

As officials hammer out a rescue package for Ireland, the single currency’s chances of survival have been thrown into doubt once again.

Doubts and denials
Politicians and economists began seriously to question the future of the euro in the wake of the EU-IMF bailout of Greece. As officials hammer out a similar aid package for Ireland, the single currency’s chances of survival have been thrown into doubt once again.

William Hague, the foreign secretary, has suggested the euro could collapse, saying he hoped it would survive, but adding ‘who knows?’

Fears that Portugal and even Spain may seek a rescue deal have heightened the speculation, causing the head of the European Union's bailout fund to insist there is ‘zero danger’ of the currency union breaking up.

‘No country will voluntarily give up the euro – for weaker countries that would be economic suicide, likewise for the stronger countries,' Klaus Regling was reported as saying.

Indeed, economists agree that although the euro’s prospects are more uncertain today than before the sovereign debt crisis erupted, it is unlikely to disappear. Nonetheless, as the possibility continues to be raised among the news media, we look at how a euro collapse could actually play out.

A north euro and a south euro
One of the most commonly mentioned scenarios is one in which Germany, the eurozone’s largest economy, leaves the monetary union.

Talk of such a move has grown in light of domestic anger in Germany at the possibility their bailout contribution will be used to fund early retirement for Greeks, or Ireland’s super-low corporate tax.

Professor Iain Begg, research fellow at the London School of Economics, noted that of the scenarios in which the eurozone breaks up, one where Germany defects and takes with it Austria and possibly Benelux – Belgium, the Netherlands and Luxemberg – was ‘slightly more probable.’

He also cited talk of a division of the eurozone into a ‘north euro’ and a ‘south euro.’ However, the professor said he was sceptical of a ‘deterministic view’ that sees the periphery and south as one category, and the north as another.

Dr Sean Holly, director of research at the University of Cambridge’s Economics Faculty, noted that since Germany is much more competitive than other parts of Europe, a reinstated deutschemark could appreciate against the euro, helping those countries that remain in the eurozon

Not sure if they can leave without paying back a huge amount of money but I would think they could be kicked out
The whole thing is a blunder. Greece, Spain and Ireland were fattened up for 10 years by low interest rates and ultra fast growth. Now they’re oven ready like Hansel and Gretel. But unlike Hansel and Gretel, there’s no magic exit .

Well Britain is in the EU but has not adopted the Euro. Cannot Bulgaria do the same? I cannot understand how Bulgaria could possibly abide by the financial rulings when Greece and Ireland couldn't with a few others not far behind, when the country is so poor. Surely, it doesn't take a financial genius to realise that Bulgaria is poor, always has been and always will be unless she sorts out her own problems first. Getting financial help from the EEC has to be paid back - its really only a loan to get things moving in the economy and productivity. Greece didn't realise that, which was very predictable in my opinion, since the 'Greeks are 'takers' in their personalities generally. I lived and had a business in Greece when it went into the Euro. Prices rocketed but didn't get out of the Greeks pockets and now they need help. Its not rocket science. Of course poorer countries want entry and will go the same way. How long before the 'brains' in charge of making all the decisions realise what us folk on the ground already know? Its just ideology gone mad.

This is an article from last year but how true and accurate was she


Whatever Germany does, the euro as we know it is dead

For Angela Merkel, leader of the euro zone's richest country, a queue is forming of high-quality adversaries. As she tips German Geld und Gut into the furnace of a rescue package for the euro, while going it alone in a misguided ban on market "
manipulators"
, the brass-neck Chancellor has infuriated domestic voters, angered her EU partners (in particular the French) and invited the so-called wolf pack of global traders to do its worst.

In one respect, Mrs Merkel is right: "
The euro is in danger… if the euro fails, then Europe fails."
What she has not yet admitted publicly is that the main cause of the single currency's peril appears beyond her control and therefore her impetuous response to its crisis of confidence is doomed to fail.

The euro has many flaws, but its weakest link is Greece, whose fundamental problem is that for years it spent too much, earned too little and plugged the gap by borrowing in order to enjoy a rich man's lifestyle. It flouted EU rules on the limits to budget deficits;
its national accounts were a moussaka of minced statistics, topped with a cheesy sauce of jiggery-pokery.

By any legitimate measure, Greece was unworthy of euro zone membership. That it achieved card-carrying status was down to the sleight-of-hand skills of its Brussels fixers and the acquiescence of central bank bean-counters. Now we know the truth, jet-hosing it with yet more debt makes no sense. Another dose of funny money will delay but not extinguish the need for austerity.

This is why the euro, in its current form, is finished. The game is up for a monetary union that was meant to bolt together work-and-save citizens in northern Europe with the party animals of Club Med. No amount of pit props from Berlin can save the euro Mk I from collapsing under the weight of its structural dysfunctionality. You cannot run indefinitely a single currency with one interest rate for 16 economies, when there are such huge fiscal disparities.

What was once deemed unthinkable is now, I believe, inevitable: withdrawal from the euro zone of one or more of its member countries. At the bottom end, Greece and Portugal are favorites to be forced out through weakness. At the top end, proposals are already being floated in the Frankfurt press for a new "
hard currency"
zone, led by Germany, Austria and the Benelux countries. Either way, rich and poor are heading in opposite directions.

When asked on Sky if, in five years' time, the euro will have the same make-up as it does today, Jeremy Stretch, a currency analyst at Rabobank, the Dutch financial services giant, told me: "
I think it's pretty unlikely."
The euro was a boom-time construct. In the biggest bust for 80 years, it is falling apart.

Telegraph loyalists with long memories will be shocked by none of this. In 1996, Sir Martin Jacomb, then chairman of the Prudential, set out with great prescience in two pieces for The Sunday Telegraph why a European single currency, without full political integration, would end in disaster. His prognosis of the ailments that might afflict the euro zone's sickliest constituents reads as if it was penned to sum up today's turmoil.

"
A country which does not handle its public finances prudently will find its long-term borrowing costs adjusted accordingly,"
Sir Martin predicted. "
Although theory says that default is unlikely, nevertheless, a country that spends too much public money, and allows its wage costs to become uncompetitive, will experience rising unemployment and falling economic activity. The social costs may become impossible to bear."


Welcome to the headaches of George Papandreou. The bond markets called his country's bluff. Greece is skint, but its unions don't want to admit it. There is insufficient political will to tackle incompetence and corruption, never mind un-fordable state spending. But, locked into the euro, Greece cannot devalue its way out of trouble, so it relies on the kindness of strangers.

Dishing out German largesse to profligate Athens, with little expectation of a reasonable return, is a sure way for Mrs Merkel to join Gordon Brown as a political has-been. Fully aware of the revulsion felt by Mercedes and BMW employees at the prospect of their taxes being used to pay for a Hellenic car crash, she has resorted to creating a bogeyman – The Speculator.

By announcing a ban on the activities of short-sellers (those who bet to profit from falling prices in financial markets), she is hoping her decoy will avert German attention from the small print of Berlin's support for Greece, which talks of developing processes for "
an orderly state insolvency"
. This sounds ominously like a softening-up process for a form of default.

Greece's severe difficulties were home-made. The euro has come under pressure not from dark forces of speculation but respectable investors, many of them traditional pension funds, which, quite correctly, worked out that when the crunch came, the Brussels elite would sanction an abandonment of its no bail-out rule and cough up for a messy fudge.

In 1990, the late Lord Ridley, when still a government minister, caused a storm by telling The Spectator that Europe's planned monetary union was "
a German racket designed to take over the whole of Europe"
. One knew what he was getting at, but it has not turned out that way.

Protecting the euro has become a project via which profligate states dip their fingers in Berlin's till. Germany is taking on nasty obligations without gaining ownership of the assets. Germany's version of The Sun, Bild Zeitung, feeds its readers a regular diet of stories about the way ordinary Germans are being taken for mugs. Trust has turned to suspicion. Next stop is divorce.

As for the United Kingdom, we must be grateful that those frightfully clever Europhiles, such as Lord Mandelson and Kenneth Clarke, did not get their way. Had they been able to scrap the pound and embrace the euro this country would be even closer to ruin. Without a flexible currency, the colossal deficit clocked up by Mr Brown would have crushed us completely. We have little to thank him for, but it would be churlish to deny that his decision to reject Tony Blair's blandishments in favor of the euro was a life-saver.

Sterling's devaluation has not been pretty, but it is helping to keep our exports competitive while the coalition Government begins rebuilding the nation's finances. Siren voices from across the Channel, calling for closer integration between Britain and the rest of the EU, can be confidently rejected. As for joining the euro, I find it impossible to imagine any circumstances under which it would be in the UK's interest to do so.

Thanks for posting that Gimp. Very interesting and says much more and better than I could. My experience of living and working in Greece makes me very defensive of Bulgaria. I never understood why Bulgaria has such a reputation for corruption when Greece was top of the league in that department.
There is great correlation between Greece and Bulgaria in that the country is made up largely of islands with acres of mainland with a small population. Much like Bulgaria's villages with few big towns. Athens always found it difficult to police the islands since when any boat bringing the 'control' arrived, the word went around like wildfire so any accounts or dodgy products were immediately hidden! Every year there were general strikes disrupting the country which have become even more regular now with accelerating violence. All this could be seen by anyone with a modicum of sense and it can only get worse.
If the EU accept Bulgaria into the euro they need their heads examined. Just look at the anarchy anywhere you look on the news because the working chap is fed up with fat cats getting fatter while they get thinner and thinner. Now Estonia is in the euro - an ex communist country. Whatever next? I bet the man in the street is not happy about it.
I have noticed that house prices on idyllic Greek islands are still astronomic and my island is now a rich man's paradise. However, how long before the gains from selling off their olive groves to the wealthy will it be before the money is spent and they are back to picking olives if any trees are left or are they hoping to retire to Britain who just might be wealthy in the distant future having not gone into the euro.

Symptoms of stress

Euro zone finance ministers for the moment have left unanswered the question of whether the 17-member group’s 750 billion Euro bailout fund will be boosted, as some of the European Union’s most indebted countries continue to struggle with the political implications of austerity measures and speculation mounts about a possible need for further rescues.

In the debt-burdened leagues, Greece, Ireland, Portugal and Spain continue to be the talking points, notwithstanding all denials in the latter cases.

After Euro group finance ministers met on January 17, followed by a meeting of EU finance ministers the following day, all that became clear was that there would be a new round of stress tests of banks.

But if there is to be clarity about increasing the bailout fund – the European Financial Stability Facility, if you prefer the official term – it appears probable that this will come no earlier than March.

Euro group chairperson Jean-Claude Juncker has called for an increase in the fund, but the move was opposed by German finance minister Wolfgang Schaeuble, who said that there was no urgency about a decision. After the Euro group met, Juncker said that several options had been discussed but no consensus had been achieved.

Dramas

Around the time of the two meetings, the four countries in the focus of top-level conversations and media reports about the rescue facility all were undergoing dramas of varying degrees.

Brian Cowen, prime minister of Ireland, which got 67.5 billion Euro in international rescue funding in December and drew 17.5 billion Euro out of its pension fund, survived a challenge within his cabinet about his handling of the bailout, meaning that he will remain in office at least until parliamentary elections currently provisionally scheduled for March 25.

Ireland, whose austerity measures have included public sector pay and job cuts and reductions in social welfare spending, said through its finance minister Brian Lenihan that it wanted a better deal on the interest rate it was paying.

Greece, meanwhile, rushed to issue assurances that it was not seeking to restructure its debt.

Ahead of the Euro group meeting, Greek finance minister Giorgos Papaconstantinou, in an interview published in Kathimerini on January 16, said that media reports about a restructuring were not true.

Papaconstantinou also brushed off the previous week’s decision by ratings agency Fitch to downgrade Greece’s credit rating to junk. "
Agencies' decisions must be dictated by the actual facts, not predictions for the future, which are based on a lot of baseless assumptions,"
he said.

However, there are continuing concerns about how Greece will deal with its debt. Media reports on January 18 quoted deputy prime minister Theodoros Pangalos as saying that Greece should renegotiate repayment of its overall debt, not just the 110 billion Euro that it borrowed in an EU/IMF package.

Debt deals

Spain and Portugal sold off some of their debt in auctions on January 12 and 13.

Spain entered 2011 with an austerity budget that cuts public spending while hitting the relatively wealthy for more tax, pushing up excises on tobacco (at the same time, bringing into effect tough rules against smoking in public) and with plans for privatisations of stakes in some public enterprises. While – like Portugal – its debt auction went well, Spain continues to be in the frame of concern because, among other things, it faces worsening unemployment.

Portugal similarly has brought in austerity measures and like all other countries to have done so, has faced public sector strikes and protests in return. It was specifically mentioned by Schaeuble in his argument against there being any urgent need to decide about increasing the bailout fund: Portugal, he said, did not "
want or need"
a rescue loan.

Home and away

For Bulgaria, which recorded a significant downturn in foreign direct investment in 2010, going by 11-month figures, the unfolding saga of indebted Euro group countries is of direct interest.

Of the countries already subject to bailout deals or frequently mentioned as possibly in need – the PIIGS, Portugal, Italy, Ireland, Greece and Spain, three are in the list of Bulgaria’s top 10 export clients. Going by Bulgarian National Bank figures from December, among EU countries importing from Bulgaria, Greece is number two, Italy number three and Spain number seven.Portugal is 18th and Ireland 22nd.

Parochial interests aside, the performance of the Euro around the finance ministers’ meetings were watched with the customary interest.

Notably, even though no deal emerged after January 17 about increasing the bailout funds, the Euro rose sharply, and on January 19 achieved an eight-week high against the dollar, probably for two reasons – reported remarks by German chancellor Angela Merkel that Berlin would do everything to guarantee the stability of the Euro, while in the US, expectations were that the federal reserve would not lower interest rates.

[size=50:bqub9yf9]Daily Telegraph

[size=150:bqub9yf9]'One in seven' chance that nations will abandon the Euro

The risk is roughly one in seven that Europe's ongoing debt crisis will push member nations to abandon the shared currency, raising the spectre of the "
effective end of the euro area,"
the Economist Intelligence Unit has warned.

The pressure on politicians from voters at home to leave the shared currency could become "
irresistible"
, according to the EIU. Attempts to restore investors' confidence in debt-laden nations' ability to honour their commitments could see the weaker eurozone members grow ever wearier of the demands placed on them, according to a new report from the research body.
Meanwhile, those countries whose finances are in better shape could lose patience with propping up other member nations, in this worse case or "
ultimate risk"
scenario.

The pressure on politicians from voters at home to leave the shared currency could then become "
irresistible"
, resulting in either stragglers like Portugal or Ireland or a robust economy such as Germany deciding to leave, before other members follow suit.
"
This scenario posits that sooner or later, the cement that has held European countries together for decades cracks and the progression towards ever-closer union comes to a spectacular halt,"
said researchers, who gave it a likelihood of 15pc.
The report's central scenario - put at a 50pc probability - is that the eurozone will muddle through the crisis, with the most indebted countries accepting the harsh reforms needed to cut their deficits and stronger members reluctantly offering enough support to contain the crisis.

However even this relatively benign resolution of the crisis expects some countries to default on their debt, with Greece seen as the most likely. The least probable scenario, put at a 10pc likelihood, is that the eurozone will undergo a resurgence as countries manage to rein in their public finances, researchers thought.
The European Central Bank is on Thursday expected to raise interest rates to fight inflation across the eurozone, but there are fears it will make conditions even harder for the struggling periphery.

The Euro for Bulgaria? Maybe not!!

itchyfeet wrote:

[size=50:aab7htou]Daily Telegraph

[size=150:aab7htou]'One in seven' chance that nations will abandon the Euro
The Euro for Bulgaria? Maybe not!!

one can but hope ....and maybe pray !!

We now see that Portugal is in the s**t for a coalition government who have cut benefits reined in public spending,gave out redundancy notices to the armed forces all to save money and state we are all in it together! they ain,t half dab hands at giving money away £650million to Pakistan, billions to Greece,Ireland,and now Portugal, and no doubt this lot will blame the last lot why don,t they say no after all my bank manager did when asked for a loan to fix the roof some time a go, he said I didn't have a credit rating despite not being in debt. So if the can say no I am damn sure the government can and of course I am BL**dy angry.These countries got themselves into a mess they can get there bl**dy selves out of it they have done there spending so now they can start paying the price why should the U.K. taxpayer bail them out they have had there fun now they want a loan to pay for it

Another sign that this failed European project is unravelling. Why should the Greeks, Portuguese and Irish all expect to have the same standard of living as the Germans who actually earn their way in the world? The problem with these countries is that they have lived off European grants and handouts and now they expect to live off borrowing. The bigger problem is that all the newer entrant to the EU will do exactly the same if something is not done to stop all this now.

The govt have done a grand job of selling the deficit lie and the dangers of the UK "
becoming another Greece"
. And anyone countering this view is made out to be an apologist for the previous Labour regime. This is deceitful logic. The debt should be reduced but the recovery must be secured and jobs created first. Of the following;
UK, Germany, France, US, Japan, Italy - the UK had the lowest debt as a % of GDP but on the back of the deceit that the UK was a basket case the govt has pursued ruthless cuts. Most people would agree that govt spending was excessive under labour and the civil service bloated. But with the economy in such a fragile state - cutting spending and jobs without allowing time for the private sector to recover so it can take up the slack from public sector cuts is plain stupidity. The whole UK risks ending up like the towns which Thatcher so brutally devastated by closing pits, resulting in 1000s of job losses directly in the local economy. It is time we said NO. We have our own problems to sort out. Let Germany pay. The problem is one for the Eurozone, and we are not part of it. The European "
Emergency Fund"
was originally there to provide aid for natural disasters, not economic messes who's next, will Spain go first or the entire Euro project? Even with the bailout money they cannot pay their bills. A country will default sooner rather than later. We cannot afford to help as we are broke too. There will be trouble ahead.

Bring back Guy Fawkes! That Guy knew what was required to sort UK politics out back in 1605! Joking aside,What is this 'Money' for the bail outs? It's numbers on computer screens! It's not backed in Gold etc.It's not even on paper with a water mark.Get them all into debt then suppress their economies.The powers that be can then pillage later!

ABC Property Surveyors.BG wrote:

Bring back Guy Fawkes! That Guy knew what was required to sort UK politics out back in 1605! Joking aside,What is this 'Money' for the bail outs? It's numbers on computer screens! It's not backed in Gold etc.It's not even on paper with a water mark.Get them all into debt then suppress their economies.The powers that be can then pillage later!

Great! Britain, the country that is making huge cuts can give them billions of tax payers money to help bail them out. On top of the £100 per minute it is costing the British tax payers to be in the EU - the EU they never wanted to be in but didn't get the promised referendum. Is the UK really that stupid to allow this to continue? Why does this country have to look after other countries but have no interest whatsoever in their own? If they did they wouldn't be wasting tax payers money. Someone made a comment elsewhere that nobody could run this country, well I'd give Nick Griffin a run for the money because LIEbour/Cons/Lib Dumbs have all had there go and nothing has changed for the better and we will sink deeper and deeper until we have serious changes to improve everything about the UK.

Only a few days ago, experts were saying the Euro and the EU are close to folding ! We are going to HAVE to ( Why ?) advance ( Give or Lend ) Billions to Portugal now ! Will we ever get Any money back. I don't think so. I hope the uk legals write in a currency that will exist when the Euro sinks. Who, afterall will want 6 Billion Euro's when it's not a legal currency.

Will the Portuguese accept the strict conditions attached to the new loan? It will not be easy for the Portuguese government to implement and will cause more trouble. Or will they opt to do what Iceland did and let the system slide?? Iceland are now out of trouble and looking good for the future.

Tell them all to bugger off as they have been robbing us all for years!