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[size=150:1io4w701]Bulgaria has decided to 'indefinitely' delay talks to join the euro

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Where does this leave the Leva being pegged against the Euro I wonder
Please read the bit about "
Things are so bad even Bulgaria won't join"

[size=50:ikq1a64f]Daily Telegraph

[size=150:ikq1a64f]Return to sovereign currencies wouldn't be as traumatic as assumed

The currency team at Bank of America Merrill Lynch have taken a stab at what "
fair value"
would be for the major legacy currencies in the euro in the event of a breakup. And they've come up with some quite surprising results.

The conclusion is that Spain, Italy, Portugal and France are all overvalued against the US dollar as things stand, with Spain the most at around 20pc. That's not so surprising, you might say, and if anything probably understates the true position. But look at the countries thought to be undervalued. Ireland, on the Merrill Lynch analysis, is the most undervalued even though it is undoubtedly completely bust, while Germany, which conventional wisdom would say was massively undervalued as a result of its membership of the euro, is actually only quite marginally undervalued – by around 5pc. If Germany left, says the team, then the euro fair value would fall only 2pc against the dollar. If Italy left, it would rise only 3pc.

These are not big swings. The trouble with this sort of analysis is that there is a world of a difference between academic modelling of fair value and where a currency actually trades. Any break-up or withdrawal from the eurozone would unlikely be orderly. There would be large shocks to all currencies involved, and no model can fully account for these. Currencies often show extreme deviation away from fair value. However, Merrill Lynch is adament that its modelling gives a reasonably accurate assessment of fair value once the respective exchange rates have settled. On this model, the effect on competitiveness were Germany to return to the D-mark would not be as negative as widely assumed. Even within the eurozone, the currency realignment would stretch to no more than 25pc, and against the dollar, it would be only 5pc.

This is perhaps not as odd a finding as it looks, since Germany is already a very large part of the eurozone;
it's economic prowess is therefore already reflected in the strength of the single currency against the dollar. As for Ireland, bust it may be, but it also has high levels of productivity, again runs a current account surplus and still holds major attractions for inward investment. In any case, it's possible that return to sovereign currencies wouldn't be quite as traumatic as everyone assumes.

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Possibility of the collapse of the euro.

Following the downgrading of Belgium's credit rating, the Foreign Office is advising its embassies to prepare contingency plans for the possibility of the collapse of the euro.

You would expect the Foreign Office mandarins to be prepared for every eventuality - but here's a doomsday scenario which might just happen.

British embassies are now taking active steps to prepare for the possibility of the euro collapsing - something that's no longer as inconceivable as it once was.

The Foreign Office is preparing contingency plans to help expats from the Costa del Sol and the Algarve who could be stranded without cash - or caught up in riots and civil unrest.

n the historic town of Bruge, they are preparing for the annual ice festival. But it is a chill of a different kind that is preoccupying the leaders of Belgium.

The country's credit rating has been downgraded and that is causing shockwaves throughout the eurozone.

Belgium is no fragile Mediterranean economy. It's one of the founding members of the European community and to some economists its downgrade makes the collapse of the euro much more likely - and Britain can't escape the consequences.

"
I think we would be talking about defaulting and mass bank runs on a scale unparalleled in human history,"
said Dr Andrew Lillico of the Europe Economics. "
We've never had events of this sort in the period where we have banks of this sort that we have now."


It's been known for some time that the Treasury officials have been planning for the possible break up of the euro but it now looks as if other Whitehall departments are doing the same. At the Foreign Office they've been reminding embassies that they could have British citizens without access to their bank accounts or in danger of getting involved in civil disturbances.

The crisis has already given a foretaste of what could be ahead with violent protests against Greek austerity measures and similar scenes of the streets of Italy.

The Foreign Office tonight declined to discuss any instructions given to embassy staff, referring inquiries to the Treasury.

A spokesman there said "
You would expect every good government to have contingency plans in place to cover a range of eventualities and risks, and this government is well prepared for any eventuality."

And there is more about this which I have copied here. I have to say its not looking good.

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Can Britain cope if the eurozone collapses?

As the unthinkable looms, ministers are starting to prepare for the worst.

What happens if the eurozone breaks up?

It would make the collapse of Lehman Brothers look like a mere rehearsal. The risk is that if a eurozone government – say Greece or Italy – defaults on its debts, it will send such a shock through the European banking system that there would be a cascade of bank failures and the seizing-up of basic transactions.

In such conditions, it is hard to see how the eurozone could be calmly picked apart by policy-makers: its break-up would be rapid and disorderly, with some countries leaving the euro and a chaotic slump in trade, consumer confidence and demand for goods and services.

Is a collapse looking likely?

Until recently, the idea that the eurozone could break into pieces seemed outlandish. But increasingly, it appears to be the most likely outcome. Last week, the markets even turned on Germany, which is usually seen as the ultimate safe bet. On Wednesday, more than 30 per cent of the 10-year bonds that it was trying to sell went unbought.

The funding problems of the Spanish and Italians have worsened, as investors try to protect themselves by avoiding anything connected to the ailing euro. Banks are also finding it increasingly difficult to get funding, with lending between nervous institutions drying up.

Are the banks prepared?

This week, the Financial Services Authority warned British banks that, while it is not predicting the end of the euro, they should certainly “war-game” such a scenario. Ominously, their counterparts in France and Italy are explicitly avoiding such contingency planning, because they regard the single currency’s collapse as unthinkable. There are echoes of the Titanic, and the disastrous decision not to provide enough lifeboats because the ship was supposedly unsinkable.

What would be the impact on the British economy?

Britain wisely stayed out of the euro, despite the best efforts of Tony Blair, Lord Mandelson, Ken Clarke and Nick Clegg. But almost half of our trade is with Europe, so a deep recession on the Continent would hit order books of British businesses hard. Estimates of the resulting downturn vary, with studies suggesting a fall in UK GDP of somewhere between 2 and 4 per cent.

Our banks have reduced their exposure to countries such as Greece, but a widespread panic and credit freeze involving Greece, Spain, Italy and even France is bound to reduce the amount available for lending. That will make the already problematic business of recovery even more difficult.

What can the Government do?

Behind the scenes, Whitehall’s first priority is contingency planning. The Government is now operating on the basis of an expectation that the single currency will come apart, but is hoping it doesn’t happen soon: “The eurozone was a mad idea,” says a senior minister. “It will break up. But so terrible would be the impact that we think it’s worth them having a go at keeping it together.” In the meantime, the Foreign Office is focusing on trying to prepare the machinery to help Britons who might be stranded abroad if banking systems and cash machines go down.

There is also the potential for social unrest: embassies and consulates have been told to prepare for a flood of inquiries and requests for help if the euro stops working in some countries and other currencies have to be introduced (there are a million Britons in Spain alone). Fortunately, the government can keep liquidity flowing at home in an emergency, thanks to the UK retaining its own currency.

Is there any good news?

Not a lot in the short term, but there is some further down the road. Even if the euro as we know it comes apart, it is unlikely to splinter into 17 new currencies. Austria, Holland and others are so closely integrated with the German economy that a northern currency bloc would quickly be born. That bloc – let’s call it “Greater Germany” – is extremely prosperous and would want to be open for business as soon as possible.

Economic crises also present opportunities. Britain has a long history of trading well beyond Europe’s borders, and the Government is keen to encourage better links with rising countries such as India. It will take time, but a post-eurozone Britain could end up less fixated on Europe, and more engaged with the increasingly prosperous outside world.

I see that out survey shows that 81% think that the Euro will not survive, 9% think that it will and 9% are sitting on the fence because they do not know
So it would be interesting to know what the 9% (3) are now thinking about the future and their thoughts on how and why they think it will suvive, also the 9% (3)
who posted that they did not know. Have they changed their thoughts and are more definate now Is it :Waving:good bye to the Euro

I voted that the euro would collapse ages ago and it seems more certain now than ever which is why I am getting busy turning my euros from the house sale into sterling and also keeping some sterling in cash as contingency plans. Not much more I can do except maybe go on a spending spree before the inevitable happens.

Yes, you are right oldun it is going to be a long week ahead for the Euro. I will be changing my Euros into Sterling as well, no good holding Euros when the currency is dead is it?

itchyfeet wrote:

Yes, you are right oldun it is going to be a long week ahead for the Euro. I will be changing my Euros into Sterling as well, no good holding Euros when the currency is dead is it?

They could become a valuable antique

The collapse of the Euro as a currency, or the expulsion of some members from the Euro actually would be quite favorable to the UK. In trading with the UK, France, Greece, Italy, Spain, Portugal and Ireland already have to change money. There will be no additional money changing costs beyond those they already pay if they revert to their own national currencies. However for them to then trade with Germany etc. WOULD incur an additional currency exchange cost and risk they didn't have before - so trade with the UK would be more economically favored than it is now. Besides, the more currencies there are to exchange, trade, speculate in, hedge against, etc. the more work for the finance industry, which is dominated by London. The bankers in the Euro zone are rusty, they haven't had to worry about this sort of thing for a decade. UK bankers do it every day. They're ready for all the new business a Euro break-up would give them.

Carmen wrote:

the German politicians seem to be 'calling the shots' in the EU at the moment. Political power based on economic power, or possibly even replacing economic power...but is that really what the German people want, for all their hard work and economic success to pay for the once dormant lofty dreams of German political leaders to be in charge, de facto, of a European superstate? the creation of the Euro was, for some, a hope of a better economic future but for others it was a bribe and an inducement to sell out and lose a vital part of their national identity...to what end? a better standard of living? an earlier and easier retirement? a more peaceful Europe? BUT, for those whose desires aren't motivated by personal wealth or comfort, but are motivated by 'grandiose' political schemes the creation of the Euro HAD to take place in order for there to be an eventual European political superstate. Without the single currency there can't be and won't be the 'United States of Europe'..

What a week it's turning out to be, the great USA has had to shell out to save us all from abscurity. The wonderful Euro is in so much trouble that help from the other side of the Atlantic has had to be sought to fill the coppers and stop the world from falling into a financial abyss. While this is all going on of course the financial heads of the EU are muttering all manner of things least of all of how much this gigantic fiasco is going to cost us all or how long this saga will continue to last.

What the hell are we thinking, being part of a bale out of Europe led by the US Federal Reserve? The Fed' is a private corporation! The US precipitated this whole mess in the first place by selling bad debt on to whomever was gullible enough to trust them. Now we're going to trust them again? Look at the state their country is in! They have the answers? I think not! How bad does it have to get before we see what they're doing? Britain should not continue to prop up the European project in anyway. The thing is crashing down, its in financial distress mode and it must now crash because creditors are withdrawing funding from these entities ensuring their demise. Best thing is to focus on the preservation of the British financial system and ensure it is protected as best as possible. Britain also needs to ring fence British concerns otherwise funding to prop up multinational banks will simply be dissipated as they use that funding to prop up their position in secondary nations. Britain should request significant concessions from banks in this time of crises, in fact any monies offered should be against British assets (mainly housing stock and utilities) and they should be convertible to equity so the taxpayer cleans up at the expense of shareholders. We must ensure that we do not get sucked into becoming involved in whatever new system the failed bankers and EU politicians throw together to keep themselves in the lifestyles they have become used to. They have all failed us and cannot be allowed to have any part in the future. The people must speak out loudly.

This seems to be turning out to be a big disaster and makes me think that yesterday's strike will only contribute to the demise of the Euro
What will happen in Bulgaria if the Euro does go. What will that do to the lev and who will control what the actual value of it will be

The following is a report from the Stock Exchange 6 hours ago

Main Money World news Technology

Source:
credits Press Association News - Main.Warning to banks on eurozone crisis
Banks should prepare for a potential eurozone collapse, Sir Mervyn King has said
01 Dec 2011 - 15:03

Bank of England Governor Sir Mervyn King has urged banks to brace themselves for a potential eurozone collapse amid fears that Britain is caught in a second credit crunch.

Sir Mervyn said financial systems around the world are vulnerable to the eurozone debt crisis and its underlying causes - but warned a resolution was "
beyond the control"
of any UK authority.

Appearing in his role as chair of the interim Financial Policy Committee, the Governor said: "
In the UK, we most try to bolster the resilience of our financial system to better withstand the storms that may come in our direction."


The report comes after Downing Street warned that Britain was in the grip of a second credit crunch, and six central banks, including the Bank of England, acted to encourage lending between banks and stave off economic stagnation.

In its final meeting of the year, the interim Financial Policy Committee (FPC) labelled the euro area crisis as the "
most significant and immediate threat to UK financial stability"
.

The dilemma faced by the banks was underlined by the FPC's recommendation to boost capital levels - to protect against future financial crises - while at the same time maintaining or boosting lending to households and businesses.

In its financial stability report, the FPC said UK banks' exposure to government debts of the so-called vulnerable five - Greece, Portugal, Italy, Spain and Ireland - totalled £14.8 billion. Total exposure to the vulnerable five, including private sector debt, is £191.8 billion.

However, Sir Mervyn said UK banks were in a better position than their continental peers to withstand future financial shocks.

But credit conditions in the UK could tighten if banks are forced to take higher credit losses on exposures to the euro area - where the FPC warned there are already signs of a credit contraction.

Sir Mervyn refused to be drawn on details of any contingency plans the Bank or the Government may be drawing up in the event of a collapse in the euro

Tuning in to CNBC yesterday morning I caught the end of a debate with Bulgaria's finance minister Taichov (?). Searching questions were being asked and he had an answer for everything. When asked if Bulgaria still wanted to go into the Euro (although it has been delayed), now there was such a crisis, his answer was 'yes'. ????? What will happen to the lev as Willowsend asks if the euro goes or manages to cling on? I predict disaster either way. Unicreditbulbank only allow a very low amount of money to be transferred to another country so start taking some out now is my advice. Maybe another reason for Brits leaving Bulgaria. This must mean that banks are already worried about a money drain out of the country.
I started a topic about whether Brits here were worried about the demise of the euro which got very little response. I suppose we don't have much choice if we live here permanently but it is very worrying. This Euro problem is something none of us could ever have predicted. Some financiers must have seen it coming, after all, anyone with stocks and shares etc follow market trends all the time.
Lastly, I cannot understand why Britain has to pick up some of the tab to bail out the euro when Britain does not use the euro as currency and what benefits are there of being part of Europe anyway? Complete disaster.

[size=50:2o1hlt48]Daily Telegraph

[size=150:2o1hlt48]Euro enters the last chance saloon
Ever since central banks agreed to provide additional liquidity support to Europe's stricken banks, stock markets have been surging in anticipation of an eventual, much wider ranging deal to save the euro. Are they right to do so?

Nicolas Sarkozy could scarcely have looked more miserable than he did at Monday's joint press conference, and small wonder. The French president has got an election coming up, and there is still no sign of the action necessary to alleviate the gathering economic gloom. Not on the evidence of Monday's press conference by Nicolas Sarkozy and Angela Merkel, where any agreement that might have been reached was about as clear as mud. Nor was there anything in what they said to address the immediate crisis.

To the contrary, they merely reaffirmed the old position – the European Central Bank must not act as lender of last resort to sovereigns and eurobonds are out of the question. The upswing in markets is being called a "
relief rally"
, but relief about what? There was no solution offered to the looming funding crisis faced by Italy and Spain – and perhaps others too – and there was no plan for growth. Still, no matter;
markets are determined to believe that salvation is at hand. Now obviously, it is always a mistake to read too much into the short-term movement of stock markets, and particularly the relatively common phenomenon of the pre-Christmas rally. The cynical view of such rallies is that they are largely driven by the upcoming bonus season. With the annual scramble for bonuses already well under way, fund managers tend to plunge in for fear of getting left behind and underperforming their benchmarks.

Quantitative easing in the UK and the US is also helping;
investors are being driven out of low-yielding government bonds into higher risk securities. Recession in Britain this quarter and next, already pretty much pre-cooked, may soon prompt the Bank of England to increase the present programme of QE still further to something approaching the £200bn spent in the last round a couple of years back. As France and Germany quarrel about treaty changes designed to underpin the euro's long-term future, the more immediate threat – that Europe is fast sinking into a severe recession – seems to go largely ignored.

Virtually all break up and default scenarios, on the other hand, are regarded as very bad indeed for growth, especially in the eurozone periphery, where enforced exit would also trigger double-digit inflation. Bank and sovereign funding would almost entirely disappear in weaker nations, with the ECB no longer able to supply alternative liquidity. Virtually all contracts, financial as well as real economy, would require renegotiation. Many would default outright. Italy has meanwhile buckled under and agreed important reforms in the public finances. And plans to make investors share in the burden of future bail-outs, which had been undermining sovereign funding, have been abandoned. Accordingly, Italian bond yields have eased.

[size=85:35cxono6]citywire-money 20-12-2011
[size=150:35cxono6]Euro collapse: how businesses should prepare

A break-up of the single European currency is a risk that businesses cannot ignore, says Professor Nuno Fernandes.
The collapse of the euro would have a devastating impact on businesses and their customers.

Don't bury your head in the sand
On 5 December Standard &
Poor’s warned of a possible mass ratings downgrade for 15 eurozone countries, including the six AAA titleholders, Germany, France, Austria, the Netherlands, Finland and Luxembourg. This would have been considered unthinkable just a year ago.

In my view, the euro will survive, and I even foresee a probable resolution of the current uncertainties by the end of January 2012. The resolution is likely to consist of short-term measures (including a massive guarantee or liquidity provision by the European Central Bank) and medium-term measures (fiscal consolidation and competitiveness initiatives).

Nevertheless, business leaders must realise that there is a real threat of the euro breaking up. Some managers prefer to ignore this issue, and have not put a plan in place for a euro break-up. This is simply bad risk management. Even if the odds of such an event are low, the consequences could be devastating.

I recommend the following seven steps as the basis of sound contingency planning:

1) Prepare for a liquidity crunch
Interbank lending has already dropped sharply this year, and a euro collapse would squeeze liquidity further. The question is whether the credit crunch will reach beyond Europe. You have to worry about balance sheets around the world. Are you ready to fund your operations for the next 12 months, without access to bank credit or bond markets?

In addition, many of your loans and bonds may have covenants linked to the rating of your firm, or even to the sovereign rating of the country where your firm is located. Are you capable of sustaining uninterrupted funding for your operations in case the covenants are breached?

2) Focus on your core business
Some companies are better placed than others. If you generate more than half of your sales outside Europe, or from emerging markets, you are on safer ground than others. Have contingency plans that allow you to focus on your core business, and minimise disruptions to it. This may involve divesting some non-core assets. Remember, when everybody is selling, it's not a good time to be a seller!

3) Get ready for a credit squeeze
If you have to roll over a substantial amount of debt in the next few months, what steps can you take if there is a substantial worsening of economic conditions, leading to a complete freeze of credit markets? You must prepare to ensure an uninterrupted flow of funds to continue your business operations.

4) Manage exposure to foreign exchange
If you are mainly a eurozone exporter, what procedures do you have in place to deal with currency uncertainty? Reconsider currency hedging programmes. With countries coming out of the euro, we will see some massive devaluations (30% to 60%) that will make imported products very expensive. Doing nothing may mean that your profits, when converted into a common currency, can plummet substantially.

However, take extreme care with derivative market hedging. A substantial part of the credit default swap (CDS) market is unlikely to serve as a hedge. Indeed, following the recently approved 50% haircut on Greek debt, bondholders are still complaining that this is a 'credit event' that should lead to payment under the CDS contract. The issue is not settled yet, but there are political pressures to end the validity of the CDS as a credit/hedging tool.

5) And watch out for 'reconversion'
This has huge balancesheet implications for exporters in particular. Hoping for the best is no longer an option. What will you do if there is a massive devaluation (relative to the dollar, pound, Swiss franc or yen) of the currencies (re)adopted by peripheral eurozone countries if they leave the euro? Do you have the payment systems ready for a change in the invoicing currencies, and consequent changes in cash flows?

6) Monitor your supply chain carefully
Small firms could be disproportionately hit if they depend on exports to the European continent. Watch your suppliers’ finances carefully too, and try to work with them on some win-win propositions for both sides.

7) Hunker down for a long recession
Be sure to place cash reserves in safe investments and control non-essential expenditure. Also take into account the weak economy and constraints on consumer spending that may result from this crisis. Consumption patterns will no longer be the same.

Good risk management means planning for unlikely scenarios. The odds of a euro break-up are small. However, the consequences could be devastating, and you don’t want to be caught off guard.

Nuno Fernandes is professor of finance at the IMD Business School in Lausanne, Switzerland

5 comments so far. Why not have your say?
Edmond Jackson
Dec 20, 2011 at 12:10
.It could also be argued, the likelihood of euro fragmentation is strong, and the consequences would be less constrictive.

report this .John Moynihan
Dec 20, 2011 at 12:12
.How can a business keep cash safely and fairly liquid ?

report this .Ian
Dec 20, 2011 at 12:19
.The single European currency was built on fundamentally bad foundations and this cannot be overcome. The political leaders of the member states seem to think they can fix the problem but they cannot buck the market and the signs are that the currency will break down. It seems unlikely that it will come to an end entirely but it seems equally unlikely that it can survive in its present form.

report this .Anonymous 1 needed this 'off the record'
Dec 20, 2011 at 13:09
.If the Euro doesn't collapse in the next few months, it will certainly collapse sometime.

It doesn't have the permanence of currencies such as the US Dollar, GBP or Yen.

So, if not now, then, sometime, businesses will have to be prepared for its demise.

report this .RICHARD AUSTIN
Dec 20, 2011 at 13:30
.It's almost a"
given"
that the eurozone will not look the same in 12 months time

.

At the moment the Euro has a relative value, (to stronger, more stable currencies) that places it closer to the DMark point on the chart, than the Drachma.

IF there is a medium term "
fix"
it seems inconvievable to me this valuation will be retained.

So, plan for a break-up, if you are able, but expect a de- facto devaluation of the Euro some time fairly soon.

Politicians have known this was likely to happen for a long time now. They didn't tell us because they were afraid of the consequences . I think there is far worse to come? its certainly not going to be resolved in most of our lifetimes .