Saturday 15 May 2010

The Euro: Gute Nacht!

This is a graph of the Euro-Dollar exchange rate during Friday of this week. It does not make good reading if you are long Euro's. In fact the FTSE's 3.5% fall was not exactly a barrel of laughs either. To think the index is down on the year despite relatively good economic performance against last year.

Still, the Euro is in very deep trouble. The problem it has is existential. it is not as if people have not been saying that it won't work for a long time. Look at this article and comments I wrote more than 2 years ago, as soon as the financial crisis hit it was a big flashing red for the survival of the Euro. OK, along with many people I thought it would be Spain or Italy to go down first, but the point is that many people have been expecting a Euro flop. Now it is here many traders are short the Euro. It is the Markets Vs Germany.

Place your bets!


cornishgiant said...

Is it plausible (not theoretical) that the euro might cease to exist or less drastically that some countries revert to their own currency?

Steven_L said...

I've just been to Germany, the German voters don't seem to want to bail it out.

Although curiously, they think we should join.

I got the impression they are in a bit of a muddle.

Budgie said...

Sooner or later the Euro has to face the consequence of its being a common currency without a common fiscal government. There are only two ways out: the eurozone will break apart; or the EU will impose fiscal governance on all members.

If that happens within the lifetime of this ludicrous, fraudulent coalition, God help us, because the Cleggerons are europhile to a man.

Andrew B said...

You have it in one.

... EU will impose a weird mostly German style of fiscal governance on all members.

Mostly German because the Germans wont put up with anything else and the rest have no credibility without the Germans.
I am not sure how the French will like that, unless they persuade everyone it was their idea.

Frugal Dougal said...

The French electorate may also want to send Nicolas Sarkozy a message about his table-thumping tantrum insisting that Germany (and France) line up to support the Greek economy. The message could go something like: "sorry, we thought you were French..."

Steven_L said...

It's testing the Oct 2008 low against the USD as I type.

Exciting stuff, I'll be up all night I think.

Steven_L said...

It's just broken through! Time to get the coffee machine fired up!

The Great Simpleton said...

There are only two ways out: the eurozone will break apart; or the EU will impose fiscal governance on all members.

Far too much political capital has been invested for it to be allowed to fail ie countries revert to their own (old) currencies).

Fiscal governance isn't failure, its a desired outcome of the EU's driving force - Ever Closer Union.

Old BE said...

The German people were never as keen on the Euro as most other electorates. I think they felt as if it was a necessary evil than the start of a bright new future. That is why the government at the time was so keen on the stability pact. Why was the not used a bit earlier to rein in Greece, Spain, Portugal et al.?

The Germans have a very acute sense of fair play. They will not bail out the Greeks, especially as they themselves have spent since reunification working hard to improve their own position the hard way. The German government will not deliberately smash the Euro but also it will not enter into any kind of EU fiscal government scheme drawn up by the French and Brussels.

Difficult times ahead for all of us.