The Demise Of The Euro

[LaoPo]

The Demise of the Euro

Tensions between inflation-obsessed Germany and growth-hungry Latin countries will spell its end.

Avi Tiomkin* 04.21.08, 12:00 AM ET

It is only a matter of time, probably less than three years, until the euro experiment meets its end. The financial crisis in the U.S. is hastening the process, as investors flee the dollar, pushing the euro to a price of $1.59. But it will not stay high for long. Countries like Spain and Italy will withdraw and return to their old currencies. Once that happens, get ready for the return of the deutsche mark and the French franc.

What will undo the euro: the mounting tension between the inflation-obsessed German bloc (including Austria, Luxembourg and the Netherlands) and the Latin bloc of France, Italy and Spain. The Germans, saddled with memories of the hyperinflation that brought the Nazi Party into power, remain singularly focused on fiscal and monetary discipline. Despite core inflation in the euro zone of only 2.4% and a slowing global economy, the Germans insist that the European Central Bank maintain a tight monetary policy. In direct opposition to Germany, the Latin bloc, joined by Ireland, wants the ECB to lower interest rates.

Spain's worsening real estate slump dramatically illustrates the problem faced by the Latin bloc. For years Spanish home building and buying outstripped that of Germany, Italy and France combined. Now that the boom has turned to bust, the Spanish central bank cannot lower interest rates. Nor can the treasury devalue the currency. Bound to the euro, Spain can only complain to the ECB, while watching its economy circle the drain.

European heads of state and the European business press are making their discontent public in stark language. "We cannot continue to cope with the autism of some bankers who do not understand that the priority is not fighting inflation, which is nonexistent, but fighting for more growth," declared French President Nicolas Sarkozy last year. In October, in response to German Finance Minister Peer Steinbrueck's comment that he "loves a strong euro," leading Italian business newspaper Il Sole ran a headline labeling the remark "a declaration of war." "Italy has lost the ability to grow," the Italian finance minister, himself one of the founding members of the ECB, admitted recently.

The euro has long had detractors, who question the viability of political and monetary union in Europe. Haunted by World War II, the generation of leaders that included Helmut Kohl and François Mitterrand was willing to give up sovereign powers and national interests to create a common currency. But with no shared language, customs, culture or political system, the euro zone has never existed except as a construct in the minds of bureaucrats and politicians.

Now, as the divisions increase, insiders are beginning to take a dim view of the prospects for continued monetary union. "We believe the euro will not survive in the long run in the absence of some kind of political support," the president of BusinessEurope, a pan-European business association, stated in early March.

Along with the steep selloff that will precede the disintegration of the high-flying euro, other markets will be shaken. Look for much higher interest rates for prospective euro deserters like Spain and Italy as spreads for benchmark German bonds widen.

What should investors do? Gradually start to hoard dollars and short the euro. Another strategy is to sell investments in Italy and Spain and buy German fixed-income assets.

The political situation in Europe is likely to accelerate the euro's demise. Now that the Spanish elections are over, politicians there no longer feel the need to remain silent about mounting economic woes. If, as Italian polls predict, Silvio Berlusconi becomes that country's prime minister, the man who criticized the euro as "a disaster" would join a common front ready to take action by the time Sarkozy's France assumes the European Union presidency this summer.

The tight-money Germans will not push to preserve the euro. A poll released at the end of 2007 by Dresdner Bank showed that 62% of Germans support reinstating the deutsche mark as the country's currency. It appears that their wish will come true.

http://www.forbes.com/forbes/2008/0421/034...news_newsletter

* Avi Tiomkin: financial analyst & venture capitalist.

"Avi Tiomkin likes to read newspapers. Most working days he spends between 12-16 hours absorbing information from a wide range of international news sources, especially the financial press and wire services. As a result, he has acquired an incisive knowledge of macroeconomics. But his interest is more than academic. Through his involvement in world financial markets, Tiomkin has become one of Israel's most successful investors."

From: http://findarticles.com/p/articles/mi_hb48...09/ai_n17441095

Searching the net I found some controversial links about Mr. Avi Tiomkin, involved in various 'adventures'. However, as I never heard about him I can't really judge.

Gentlemen: your comments please !

LaoPo

[Naam]

The Demise of the Euro

The tight-money Germans will not push to preserve the euro. A poll released at the end of 2007 by Dresdner Bank showed that 62% of Germans support reinstating the deutsche mark as the country's currency. It appears that their wish will come true.

Gentlemen: your comments please !

LaoPo

and that includes me although i am convinced that the €UR will stay and my dream holding the good old Deutsche Mark again will not come true

[lannarebirth]

I'm not a fan of the Euro and I agree with most of the author's sentiments, but I don't think it's going anywhere. That is, until the "Globo" is introduced.

[britmaveric]

Down the Euro will go - inevitable.

[cclub75]

Gentlemen: your comments please !

Bold !

But very interesting.

http://www.jpchevallier.com/article-18154533.html

Sorry, in french, but you will see 3 charts :

-the first one : difference of yield for the 10 years between Germany and France

-the potential devaluation of the French Franc compare do DM (5 to 6 %)

-and potential devaluation of Lira Italy compare to DM (15 %)

We have divergences within the Euro Zone. Investors prefer to buy german treasuries rather than italian ones...

It's a like a bet on the future.

[sibeymai]

Down the Euro will go - inevitable.

Down.....yes (inevitable) but out ? Don't think so.

[Nignoy]

I wish every country would make up their mind about which currency policy they are going to keep !! Think of the poor expat pensioners who actually legally qualify and are entitled to 3 age pensions all from different countries , all these silly fluctuations play havoc with banking you can forget direct debitting with up to 10% plus or minus each month, and then with centrelink sticking their oar in where ever they can,when I applied to have my pension paid out once a year in Gold, they told me I was taking the piss you work all life ,save a bit of cash, pay into all your pension schemes , to proud to bludge on the dole, time comes for you to retire and reap your well earned rewards , then you get it up the arse again because some govt or other devaluates their currency Nignoy

[AFKAFSinLOS]

I'm not a fan of the Euro and I agree with most of the author's sentiments, but I don't think it's going anywhere. That is, until the "Globo" is introduced.

Have always had mixed feelings on the Euro, but overall have felt there's more pros than cons long term. Also nice to have a real currency alternative to the USD again, rather than just gold.

There's always a chance it may fail. But my money (whatever the currency ) would be on regions gradually consolidating into units, eg GCC Arabian countries, ASEAN etc, at the same time as more European countries joining the Euro.

The next step would be all these regions consolidating in stages into a single global currency, although probably not in my lifetime. Perhaps bilateral regional consolidation to start. So I'd agree that the Euro is more likely to see its demise into amalgamation into a larger unit, rather than disintegration into smalller ones.

[Brigante7]

It was my understanding that once a country had adopted the euro, there was no going back.

I'm sure somebody will correct me if I'm wrong.

[LaoPo]

It was my understanding that once a country had adopted the euro, there was no going back.

I'm sure somebody will correct me if I'm wrong.

If one country would step out of the Euro currency it will be an immense costly affair for that particular country, apart from the fact it will cost even more on the long run. It would cost Billions of Euro's just to make that step.

I don't see it happen that Italy and Spain, followed by Germany and France will step out of the Euro like the author of the article claims.

Nothing is impossible but highly unlikely and I see the article as a kind of wishful writing, trying to prove he's right.

In the article, he is writing on at least two different occasions about the 'haunted' feelings of the German Leaders and the people who are "saddled with memories of the hyperinflation that brought the Nazi Party into power"... What a rubbish !

I expect a little more reality from an Israeli journalist, more than 60 years after WWII ended.

As if those countries, leaving the Euro would prosper and glow immediately again; what nonsense.

The problems in those countries aren't solely because of the introduction of the Euro; they were there already in the first place, especially in Spain and Italy but not forgetting about France, whose economy has been a sleepy dull one for a long time.

I don't think for a moment that Sarkozy will abandon the Euro...threatening to leave the Euro ? Yes, probably, but not doing so.

If Spain, for instance, would leave the Euro, does anybody really think the -HUGE- problems would be over, once they have their Peseta back..? Really ?

I don't think so; Spain built 5 Million houses in the past 10 years on a population of 40 million....and they didn't built those houses BECAUSE of the Euro...The vast majority of those houses were built because prices, interest, mortgages and labour (from Eastern Europe) was cheap. Greed was another factor.

If Europe would make those currency-swap-steps back in history and have the Deutschmark back, the Italian Lire (don't make me laugh), Spanish Peseta and French Franc....would Europe be better off economically ?

I remember the time when I traveled through Europe with at least 10 different currencies in bags and wallets.....paper money and hundreds of different coins...a bluddy nightmare it was... A few months ago I did the same, traveling through 9 countries with just 1 currency: the Euro; I didn't even use Swiss Francs anymore since they accept Euro's all over.

It is planned that from 2009 onward to 2012, 9 more countries will have the Euro apart from the existing 15 Eurozone members; It is also used in 9 other countries around the world, 7 of those being in Europe. A total of 320 million people use the Euro on a daily basis.

http://en.wikipedia.org/wiki/Euro

My opinion ? The Euro will stay and grow in number of countries, not demise.

LaoPo

Edited April 6, 2008 by LaoPo

[siamamerican]

It was my understanding that once a country had adopted the euro, there was no going back.

I'm sure somebody will correct me if I'm wrong.

If one country would step out of the Euro currency it will be an immense costly affair for that particular country, apart from the fact it will cost even more on the long run. It would cost Billions of Euro's just to make that step.

I don't see it happen that Italy and Spain, followed by Germany and France will step out of the Euro like the author of the article claims.

Nothing is impossible but highly unlikely and I see the article as a kind of wishful writing, trying to prove he's right.

In the article, he is writing on at least two different occasions about the 'haunted' feelings of the German Leaders and the people who are "saddled with memories of the hyperinflation that brought the Nazi Party into power"... What a rubbish !

I expect a little more reality from an Israeli journalist, more than 60 years after WWII ended.

As if those countries, leaving the Euro would prosper and glow immediately again; what nonsense.

The problems in those countries aren't solely because of the introduction of the Euro; they were there already in the first place, especially in Spain and Italy but not forgetting about France, whose economy has been a sleepy dull one for a long time.

I don't think for a moment that Sarkozy will abandon the Euro...threatening to leave the Euro ? Yes, probably, but not doing so.

If Spain, for instance, would leave the Euro, does anybody really think the -HUGE- problems would be over, once they have their Peseta back..? Really ?

I don't think so; Spain built 5 Million houses in the past 10 years on a population of 40 million....and they didn't built those houses BECAUSE of the Euro...The vast majority of those houses were built because prices, interest, mortgages and labour (from Eastern Europe) was cheap. Greed was another factor.

If Europe would make those currency-swap-steps back in history and have the Deutschmark back, the Italian Lire (don't make me laugh), Spanish Peseta and French Franc....would Europe be better off economically ?

I remember the time when I traveled through Europe with at least 10 different currencies in bags and wallets.....paper money and hundreds of different coins...a bluddy nightmare it was... A few months ago I did the same, traveling through 9 countries with just 1 currency: the Euro; I didn't even use Swiss Francs anymore since they accept Euro's all over.

It is planned that from 2009 onward to 2012, 9 more countries will have the Euro apart from the existing 15 Eurozone members; It is also used in 9 other countries around the world, 7 of those being in Europe. A total of 320 million people use the Euro on a daily basis.

http://en.wikipedia.org/wiki/Euro

My opinion ? The Euro will stay and grow in number of countries, not demise.

LaoPo

Great post - you definately aren't lacking in knowledge on this topic. In my humble opinion, the Euro is here to stay and it will lose at least some of its value over the next 12 months. The Eurozone members as a whole, are better off today than before the Euro was intrduced. The fact that the Euro became a reality is amazing, considering all the counties had to agree on many different levels. Not sure if adding more members is a good or bad thing.

[johnnyk]

people who are "saddled with memories of the hyperinflation that brought the Nazi Party into power"...

Anybody saddled with those memories is at least 85 years old...not a large or influential population segment IMO.

Nice to know someone named Avi Tiomkin has an opinion about the euro though it doesn't have much currency.

Anyway, its not gonna happen.

Indeed, Spain built 5 million houses and sold close to 1 million of them to people from the UK.

The euro has been a good thing as it has prevented countries like Italy from devaluing constantly as a mask of their inefficiency, forcing them to bite the competitiveness bullet more than they would have in the bad old days.

Edited April 7, 2008 by johnnyk

[cclub75]

The euro has been a good thing as it has prevented countries like Italy from devaluing constantly as a mask of their inefficiency, forcing them to bite the competitiveness bullet more than they would have in the bad old days.

You can have an opposite view : the Euro has protected Italy from the (traditionnal) consequences of its inefficiency : devaluation.

Same goes for France.

If you compare the big number, trade deficit, budget deficit etc... in the 80' and now for Italy, France... it's terrible.

In the 80' when Mitterand (french president) was playing with communists at the government, with an insane economy policy, the... punishment was inescapable : french franc was attacked... leading to a devaluation... and to a new policy (taking care about the deficit).

But since the Euro ? A few countries don't care anymore ! And are totally unable to reform themselves.

Euro has been like a sweet opium for the politicians : no need to take hard actions to reform the economy.

It has been our -very big- cushion.

For that matter, it's catastrophic.

[siamamerican]

The euro has been a good thing as it has prevented countries like Italy from devaluing constantly as a mask of their inefficiency, forcing them to bite the competitiveness bullet more than they would have in the bad old days.

You can have an opposite view : the Euro has protected Italy from the (traditionnal) consequences of its inefficiency : devaluation.

Same goes for France.

If you compare the big number, trade deficit, budget deficit etc... in the 80' and now for Italy, France... it's terrible.

In the 80' when Mitterand (french president) was playing with communists at the government, with an insane economy policy, the... punishment was inescapable : french franc was attacked... leading to a devaluation... and to a new policy (taking care about the deficit).

But since the Euro ? A few countries don't care anymore ! And are totally unable to reform themselves.

Euro has been like a sweet opium for the politicians : no need to take hard actions to reform the economy.

It has been our -very big- cushion.

For that matter, it's catastrophic.

Just when I thiught I was drunkest person on TV. Cheers and have another!

[worldfun]

Euro is here to stay trust me - however the more interesting questions would be whether the UK would ever join and how about Scandinavia (Denmark, Sweden, Norway) or even Switzerland?

Of course one can debate the strength & weakness as well (appreciation/depreciation), but noone will never know only history just like with any other currency

[Brigante7]

It was my understanding that once a country had adopted the euro, there was no going back.

I'm sure somebody will correct me if I'm wrong.

If one country would step out of the Euro currency it will be an immense costly affair for that particular country, apart from the fact it will cost even more on the long run. It would cost Billions of Euro's just to make that step.

I don't see it happen that Italy and Spain, followed by Germany and France will step out of the Euro like the author of the article claims.

Nothing is impossible but highly unlikely and I see the article as a kind of wishful writing, trying to prove he's right.

In the article, he is writing on at least two different occasions about the 'haunted' feelings of the German Leaders and the people who are "saddled with memories of the hyperinflation that brought the Nazi Party into power"... What a rubbish !

I expect a little more reality from an Israeli journalist, more than 60 years after WWII ended.

As if those countries, leaving the Euro would prosper and glow immediately again; what nonsense.

The problems in those countries aren't solely because of the introduction of the Euro; they were there already in the first place, especially in Spain and Italy but not forgetting about France, whose economy has been a sleepy dull one for a long time.

I don't think for a moment that Sarkozy will abandon the Euro...threatening to leave the Euro ? Yes, probably, but not doing so.

If Spain, for instance, would leave the Euro, does anybody really think the -HUGE- problems would be over, once they have their Peseta back..? Really ?

I don't think so; Spain built 5 Million houses in the past 10 years on a population of 40 million....and they didn't built those houses BECAUSE of the Euro...The vast majority of those houses were built because prices, interest, mortgages and labour (from Eastern Europe) was cheap. Greed was another factor.

If Europe would make those currency-swap-steps back in history and have the Deutschmark back, the Italian Lire (don't make me laugh), Spanish Peseta and French Franc....would Europe be better off economically ?

I remember the time when I traveled through Europe with at least 10 different currencies in bags and wallets.....paper money and hundreds of different coins...a bluddy nightmare it was... A few months ago I did the same, traveling through 9 countries with just 1 currency: the Euro; I didn't even use Swiss Francs anymore since they accept Euro's all over.

It is planned that from 2009 onward to 2012, 9 more countries will have the Euro apart from the existing 15 Eurozone members; It is also used in 9 other countries around the world, 7 of those being in Europe. A total of 320 million people use the Euro on a daily basis.

http://en.wikipedia.org/wiki/Euro

My opinion ? The Euro will stay and grow in number of countries, not demise.

LaoPo

I hope not but then again with this spinless goverment, anything is possible.