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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

There is no doubt in my mind that some of the EU countries will abandon the Euro before or after this fiasco is over. It all seems so perfect that Europe can all enjoy a single currency and that there is an interest rate that is universal amongst them all, in realism it isn't possible. Germany and the UK will be dragged into forking money to prop up other EU members that have problems with the Euro while our own citizens are struggling to survive.

I have just read in a British newspaper that the Euro could collapse. What does this mean and what would be its impact on the Leva which is pegged to the Euro as far as exchange rates with the pound? Would Bulgaria devalue do you think and would this be good for those with pensions in sterling living in Bulgaria?

oldun - "
I have just read in a British newspaper that the Euro could collapse."


I am sure you are right oldun - I also believe the Euro will collapse, there is too many countries that are having problems and needing a big capital funding from the EU and the IMF. What it means in the long term is a mystery to me, but for sure it will lose its parity with other currencies and there will be a downward slide in it's value. As long as it doesn't drag Sterling down with it, us pensioners will be alright. I sincerely hope that BG don't have to join the Euro after such a catastrophy, it will be best thing for BG, I can't see the Euro doing anything but harm in Bulgaria. The Leva should survive and even strengthen because they didn't have to join the Euro.

Its worse than "
bad"
- its terrible. We have no industry;
we depend on foreign financing to service our massive deficits. Our youth are decayed. We attract the unwanted and unneeded from the entire planet and our entire country is now one big trash heap thank to the Euro amongst other things

Even if there is the slightest chance of the Euro going belly up (cheers mine's a double!!), why the hell is that gormless little twerp Osborne throwing money at those foolish countries that prefer monopoly money to their own hard currency.

From Novinite

The Treasury Select Committee heard this week that the euro is at risk of collapsing. Professor Steve Nickell, a senior member of the Office for Budget Responsibility, admitted that there is a general consensus that currency unions "
eventually fail"
.

Robert Chote, the OBR’s chairman, was even more sanguine, telling the Committee: "
We are not assuming a cataclysmic outcome for the eurozone but, as Steve said, monetary arrangements come and monetary arrangements go."


But the euro sceptics may be celebrating too soon. Most currency experts believe reports of the euro’s death are greatly exaggerated.

Even Mr Nickell had to temper his comments by adding that the possibility of a euro collapse was "
not something to which I would assign a high probability."


To unwind the euro is not a simple matter. It was another economic crisis in the Seventies which saw plans for a single European currency being hatched. Even then the euro wasn’t launched until the start of 1999 and it took three years for it to become a cash currency.

Christina Weisz, of foreign exchange specialist, Currency Solutions, comments:

"
When you consider the length of time it took for countries to opt into the single currency, it is a fair assumption that in the hypothetical event a country did want to leave, any plans to opt out will take years to come to fruition.

"
The PIIGs - Portugal, Ireland, Italy, Greece and Spain - which are currently facing the biggest financial challenges, would have the greatest difficulty leaving the euro.

“Their large trade and budget deficits are already pushing their economies to breaking point and an announcement even hinting they were considering leaving the single currency would see investors and savers withdraw in huge numbers, therefore pushing the country toward bankruptcy."


Although there is still a sensation of a slow-motion crash underway on the Continent, Duncan Higgins, analyst at Caxton FX, says: “an end to the eurozone remains a distant possibility.

“The political investment is far too great for the eurozone as an entity to collapse. Before such a scenario were even entertained, every other possible avenue would have to be explored, and that would almost certainly include ramping up levels of monetary stimulus. Against a backdrop of complete eurozone meltdown, additional stimulus measures are the superior option.”

Michael Derks, of FxPro, cites a number of reasons why the death of the euro is overblown. He says Europe has swallowed the fiscal austerity pill and the firm steps taken by the IMF and German government in bailing out Greece and Ireland has forced those countries to take strong measures to deal with their economic problems.

“From 2013, sovereign debt will be handled under new collective action and Germany has gained acceptance for the principal of bond-holder participation should any sovereign become insolvent or require debt restructuring.

“In contrast to other major central banks like the US Federal Reserve and the Bank of Japan, the European Central Bank has refused to undertake quantitative easing, which compromises the integrity of monetary policy and can result in the debasement of the home currency.”

As evidence that the euro is not as weakened as it looks, he points to the fact that it has only lost 3.3 per cent against the dollar in the current quarter, while the pound and the Swiss franc are also down against the dollar though only by around 1 per cent.

“If the euro truly is in a crisis and at risk of breaking up, then it could reasonably be argued that the currency would have lost a lot more ground against other major currencies recently,” he adds.

The reason the doom mongers have credence is the fact that the European Financial Stability Fund's next excursion - widely believed to be to Lisbon to rescue Portugal - could be its last without a fresh injection of funds.

European leaders are divided over whether more cash is the answer. They can’t even decided whether the EFSF is the best solution to the eurozone’s problems.

“After Portugal, the fund would not be able to take on anything much bigger than the Isle of Wight,” says David Kerns from Moneycorp.

“Enthusiasm for a bigger fund is strongest among those states most likely to need its assistance. Opposition is greatest among the countries that will have to stump up most of the money. So Belgium is for the idea of a bigger fund;
Germany and France are opposed to it.

“There is still a sensation of head-in-the-sand about the whole thing.”

One of the reasons a breakup of the single currency is so uncertain is that there is no breakup mechanism built into the treaty. Quite simply it should never have come to this.

Nevertheless, a resolution to the immediate crisis is not at hand.

As Mr Kerns so succinctly puts it: “The single European currency is in remission;
it is not in recovery.”

More and more Germans are coming to the conclusion that the Euro and the EU are a millstone around their necks. When Britain dropped LSD in favour of metric we were hit by massive inflation. So was Germany when they adopted the EU. So will we be if we do the same. The EU is not democratic and has not audited the books for 15 years. It is paid for by the Germans and the British and we are scheduled to pay even more. The Daily Express has just joined the campaign to get the UK out. Will the DM do the same? More importantly, will YOU?

Quote..“Enthusiasm for a bigger fund is strongest among those states most likely to need its assistance. Opposition is greatest among the countries that will have to stump up most of the money. So Belgium is for the idea of a bigger fund;
Germany and France are opposed to it.

“There is still a sensation of head-in-the-sand about the whole thing. Unquote

As the list of countries needing huge bailouts builds, there is a real risk that one of the major EU players like Germany will figure out that even taking into account the loss of trade from doing so, they would be better off out of EU &
the ERM which would cause a huge panic rush for the doors as those member countries still in the system would be on the hook to swallow a larger slice of a very nasty bailout pie...Maybe Britain would do well to be the first out of the door &
pulling up the drawbridge rather than the last!

Germany is between a rock and a hard place when it comes to deciding whether to prop up the Euro further, and bail out the rest of the EU or make a swift exit and cut its losses. The Germans have declined a issue of a Euro bond, so it looks like it is every one for themselves in the bond markets, this is really getting interesting, switching between Bloomberg and the American cable networks gives a good insight and up to date info.........The woes of the Euro have only just started....

It's a puzzle to me how the Euro came to be in the first place. It is simple logic that to share something in common, countries must firstly have something fundamentally in common. If we take the two most extreme countries, Germany and Greece, what have they in common? They couldn't be more different in every respect. The UK were wise to not adopt this foolish ideology, even academically the idea didn't stand up and there lies the problem. Too many people in influential positions are considered qualified according to their academic ability, this in turn breeds ideology;
not commonsense. Unfortunately Europe and its sovereign states are run by such people, other examples of their wisdom are, health and safety, human rights and political correctness and the socialist nonsense of attempting to engineer equality, where there are no winners and no losers and everyone gets a prize.

From Novinite

European officials are giving Greece more time to repay its $110-billion loan, even as worries grow that there might not be enough money available to rescue other financially troubled countries.

The European Union insists the nearly one-trillion-dollar bailout fund it established with the International Monetary Fund is more than adequate, but conceded that earlier stress tests to determine how well Europe's biggest banks could handle the crisis were not tough enough.

Meanwhile, the head of the IMF expressed confidence that the worst is over, but urged European leaders to find new solutions.

Even as European officials sought to calm financial markets, protesters in Ireland were busy denouncing higher taxes in the government's tough new budget.

In Greece, pensioners complain austerity measures have driven many of them into poverty.

Many Europeans worry that other high debt countries could be next.

Yet, the EU's top monetary official, Olli Rehn, remains confident. He says Europe has the necessary tools to deal with future crises - so long as high debt nations move forward with their own austerity measures.

"
The recovery is taking hold and it is progressing, but at the same time it is essential that we contain the financial bush fires so that they will not turn into a Europe-wide forest fire,"
said Rehn.

The EU says no additional funds are needed, but it will require a new round of stress tests to make sure European banks are sound. For its part, the International Monetary Fund wants European leaders to implement bold new measures.

"
Europe has to provide, the euro zone has to provide, a comprehensive solution to this problem,"
said IMF managing director Dominique Strauss-Kahn. "
The piecemeal approach, one country after the other one, is not a good one."


Strauss-Kahn met with Greek Prime Minister George Papandreou on Tuesday to discuss an extension of Greece's repayment deadline. He said the situation in Europe remains serious, but he was confident about Greece and the future of the 16-nation euro zone.

"
There is still a lot to do,"
he said. "
And what is in front may be even more important than what has been done."


European bond markets remained tense on Tuesday after EU leaders resisted calls to increase the size of Europe's bailout mechanism.

Investors are worried the fund would be inadequate to rescue larger European economies such as Spain.

Source: VOANews.com

From Novinite

The next phase of structural reform in Greece is even more crucial to unlock the true potential of the Greek economy and the Greek people, IMF managing director Dominique Strauss-Kahn said in Athens on December 7 2010.

He was speaking after meetings with the country's leaders to discuss developments in the Greek economy after the start of the EU-IMF bailout programme.

Strauss-Kahn met Greek president Karolos Papoulias, prime minister George Papandreou, finance minister George Papaconstantinou, governor of the Bank of Greece George Provopoulos, president of parliament Philippos Petsalnikos, members of the parliamentary committee on economic affairs, and the leader of opposition party New Democracy, Antonis Samaras.

"
I greatly appreciate the opportunity to visit Athens and exchange views with the Greek authorities, members of parliament, and the opposition,"
Strauss Kahn said, according to an IMF media statement.

"
I commend the efforts being undertaken by the Greek government and people to implement their ambitious reform program aimed at modernizing the economy, strengthening competitiveness, and restoring growth and employment. The IMF, alongside our European partners, is fully committed to support Greece’s efforts, including to help ensure that the economic program is socially well-balanced and fair, with protection for the most vulnerable in society."


He said that much been achieved in the six months since the EU-IMF programme began, and more still needed to be done.

"
Indeed, the next phase of structural reform is even more crucial to unlock the true potential of the Greek economy and the Greek people,"
Strauss-Kahn said.

"
This is not an easy task and it will take time for the various measures to take hold and produce full benefits. The progress made so far, however, offers a sound platform on which to build: the fiscal deficit is narrowing;
public financial management and tax administration are improving;
the financial sector is strengthening;
pension reform is completed, and other reforms have begun—now is the time to implement and accelerate them.

"
This is a defining moment for Greece. While difficult challenges lie ahead, I am confident from my discussions here that the government and people are determined to do what it takes to ensure that Greece emerges from the crisis even stronger than before. I want to assure you that the IMF will do all we can to help Greece succeed."


Greek news agency ANA-MPA quoted Papandreou as saying that the effort being made by the Greek people was a feat and that this was being increasingly recognised worldwide.

As a sign of this recognition, Papandreou pointed to the start of a process to extend the repayment schedule for the 110 billion euro lent to Greece via the European crisis support mechanism, thanking the IMF chief for his position on this issue.

A growing crisis puts the euro in danger

By Jean Pisani-Ferry

Published: December 6 2010

There are several reasons why markets have reacted poorly to Europe’s recent crisis management efforts. The response to the unfolding Greek drama was slow and hesitant. The design of the bail-out for Ireland was flawed. And the eurozone’s woes are more and more seen as symptoms of underlying flaws in the currency union. Europe’s response to date has been more innovative and effective than many of its critics realise. But it now must accept that what was once a crisis in the eurozone, is now a crisis of the euro itself.

The recognition of this difference is currently driving market reactions. The threshold of what constitutes a sustainable level of public debt is notoriously hard to assess. Debt intolerance can be especially high when countries borrow in foreign currency. Of course this should not be a problem for members of the eurozone – unless the markets start to believe that the euro might actually break up. If the euro really is threatened, existing debt begins to be seen as no different from foreign-currency denominated debt. And this, in turn, can lead a country previously considered solvent suddenly to seem insolvent. The more a break-up looks possible, the higher the risk of a self-fulfilling dynamic. For this reason the European Union cannot afford doubts about the viability of the euro to spread and strengthen.

What justifies these doubts? First, questions about the ability of the EU to make decisions. This is a matter of governance. Second, questions about the lack of a fiscal union. This is a matter of design. And third, political sustainability in times of harsh adjustment. This is a matter of remedial action.

On the first, it is easy to deride EU decision-making. It is governance by committee, which works acceptably in fair weather but is not enough when storms break and boldness is required. Improvements are needed. But the absence of a commander-in-chief is deliberate, so there is no point lamenting it. Instead, a fair benchmark would be a system about as effective as the US Congress.

Against this background, the creation of the European financial stability facility and the recent agreement on the European stability mechanism are genuine achievements. They suffer from shortcomings, not least the EFSF’s insufficient size, but they also indicate Europe’s ability to revisit and reform its old compromises. In the spring, a major difference of views emerged over one of the euro’s fundamental principles, the no bail-out clause. Some in Germany said this implied no assistance without debt restructuring. Some outside Germany said the opposite. The fact that the change was agreed in the face of disagreement shows the EU is not condemned to agonise over compromises negotiated decades ago. It can learn and reform. This is good news.

It is also easy to claim that the eurozone would work more smoothly with a federal budget. But it is pure fantasy to suggest that such a budget could be built purely for macroeconomic purposes. A common budget will emerge only if Europe decides to spend more at the federal level. In any case, transfers between countries are not necessarily desirable. They already exist between east and west Germany, for instance, but have failed to help poorer areas catch up with their more advanced neighbours. Greece and Portugal need to regain competitiveness and resume economic development, not to be put inside an economic oxygen tent.

Yet while the Germans are right to reject a transfer union, the fear of such a system is hampering discussions of sensible projects that could strengthen the euro. One example is the supervision of banks, for which improvements are slow and limited because of the fear of sharing the costs of rescue. Another is the issuance of new European bonds, as endorsed by Jean-Claude Juncker and Giulio Tremonti in the Financial Times. This is being resisted, although it can be pursued without countries ditching their national responsibility for public finances.

The third and final issue is the political sustainability of the euro. Many countries across Europe are making sacrifices in the name of the single currency. The early lessons from Greece are that harsh reforms do not necessarily weaken governments if the population regards them as necessary. But a backlash is likely when conditions set for assistance are inadequate or unfair – as was the case with the strings attached to the cost of the emergency loans offered to Ireland. This is why European leaders must urgently devise a strategy to help foster growth in crisis-affected countries, before the euro is blamed for their difficulties.

A revitalisation programme should involve a strengthening of integration within the single market, particularly in the market for services, to help Europe’s economies converge. It must involve new measures to strengthen domestic demand in northern Europe and also to foster private investment in southern Europe. This should start with the unlocking of the EU structural funds earmarked for the less developed regions (which currently remain idle for the lack of co-financing) and their refocusing on growth-enhancing investments.

Europe must realise that a case-by-case approach is no longer sufficient. A bolder, more comprehensive response is urgently needed.

There is no doubt that the Financial Losses in Greece and Ireland are probably the beginnings of something very big in terms of the EU Economy for 2011. The EU for it's own survival should backtrack on their past decision making regarding the admission of poorer European nations of Bulgaria, Romania and others. Both Bulgaria and Romania are financial basket cases Looking back into history;
these two nations have always experienced continued poverty, Whether it was an Monarchy or a Marxist State;
it's really the same issue. An Oligarchic System is only where the privileged class rules the State

Gimp wrote:

The EU for it's own survival should backtrack on their past decision making regarding the admission of poorer European nations of Bulgaria, Romania and others. Both Bulgaria and Romania are financial basket cases

You mean the EU should throw out Bulgaria and Romania? Would they be able to do that now?