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Thread: Whither the euro?

  1. #1

    Whither the euro?

    Where do you think the euro is going from here - stability, decline in value, or oblivion?

    Having read lots of opinions on the subject, IMHO the euro will likely lose value and may even implode completely. For the short term, as long as the Chinese keep quietly buying euros on the market, it will not take a dramatic plunge, but the question is how long the Chinese will perceive it in their interests to do so. They have signalled that they will not dump big money into rescue bonds for the eurozone. Indeed, there does not seem to be anyone ready to put up the money for the ''big bazooka'' level of the rescue fund, and without that, there is no way the EU can easily rescue Italy or Spain.

    The most likely scenario, IMHO, is that eventually the German leadership will allow the European Central Bank to print money for massive quantitative easing. That means the PIIGS stay afloat and the euro continues to exist, but the massive money printing that would be necessary would substantially devalue the currency. That in turn will spell a change in leadership in Germany, where the lessons of the post-WWI inflation are still deeply remembered.

    Then again, maybe they will not, in which case the Italy and others default, the euro implodes, and the world economy is hit hard.

    I have been dumping my own euros and now only hold a nominal amount for upcoming trips but have not had any as personal savings for a while. The currencies I have been adding to, British pounds, Swiss francs, and Norwegian kronor are no longer availible at a decent price, so I am retaining more dollars by necessity. I used to be able to buy Swiss francs and British pounds at very close (sometimes even less) than the mid-market interbank rate. For the last two to three months, however, buying Swiss francs meant giving a five percent exchange loss, and British pounds a three percent exchange loss. I would like to hold some loonies (Canadian dollars), a currency with good fundamentals, which also used to be availible here at very close to mid-market rates, but now require a three percent exchange loss when you can find them.

  2. #2
    Have moved my Euros to GBPs some months gao. Euro is doomed . Italy too far to far to rescue.
    G

  3. #3
    If there is a referendum, will the British vote to leave the EU?

  4. #4
    Keep in mind that the Brits don't use the Euro. I have a hard time believing they'd leave the market.

    As for the Euro itself, from what I heard on NPR today it sounds like Germany and France might be the only ones left using that currency!

  5. #5
    It is an open question. A good answer is probably looking at the results for elections for the European parliament within the UK, where there are no national issues, only issues of Europe. In the last election for the European parliament, the party winning the most seats was the Conservative Party, whose dominant eurosceptic wing wants to repatriate powers already given to the EU and restore them to national governments and does not want any further increase of EU power. Its once robust europhile wing, which once was the driving force in the political coup which replaced Margaret Thatcher, is now virtually defunct. The party coming in second was the United Kingdom Independence Party (UKIP), whose main message is total withdrawal from the EU. Labour, whose leadership is generally pro-EU but has a robust eurosceptic wing itself, was third. The most openly pro-EU party, the Liberal Democrats, finished in fourth place. Based on those results, I think it is within the realm of possibility that British voters would decide to dump the EU, and that election happened before the Greek crisis broke There have been studies which have shown that the financial benefits of being free of EU regulation would outweigh the economic losses of leaving.

    Now, as to the euro itself, all the polls have consistently shown UK voters solidly in favor of keeping the pound.


    Quote Originally Posted by pranas View Post
    If there is a referendum, will the British vote to leave the EU?

  6. #6
    I heard on the BBC that Italy is supposed to try to sell 8 billion euros in bonds today. If they cannot, or if the yield is in the stratososphere, then that might well be a trigger of a run on the euro and / or on banks and bonds.

  7. #7
    Super Moderator chriskre's Avatar
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    So how do you think that will affect tourists visiting Italy and Spain?
    I'm planning a trip in January. What timing.

    I guess I won't be converting to Euros for this trip, maybe they'll actually want my dollars.

    I remember going to Brazil in the 80's where you had to change your money every day because it was literally losing value overnight and you didn't want to exchange more than you could use. On one occasion I had literally a sack of money for a few dollars. Very scary times for Brazil but somehow they've rebounded. I hope the Euro can rebound as well but very unnerving for those who have to use it.

  8. #8
    Quote Originally Posted by Carolinian View Post
    There have been studies which have shown that the financial benefits of being free of EU regulation would outweigh the economic losses of leaving.
    Now, as to the euro itself, all the polls have consistently shown UK voters solidly in favor of keeping the pound.
    That sentiment is very similar to the to the 10th amendment and states' rights focus of the Tea Party movement here in the U.S.

    As for the Euro, one of the scenarios I have heard as likely, is that of an inverted collapse. Instead of membership falling apart from the bottom by way of the distressed PIGS members, it could be Germany that says "Enough! We are out!" They would then go back to the DM.

    A good hedge and potential arbitrage may be to invest in German bonds?

    Currency exchange rates will probably be a wild ride for the foreseeable future, and gold is a bit like trying to catch a speeding train... its enough to make one just leave for a tropical island and drink something with an umbrella in it.

  9. #9
    the big problem for those of us in the US is if international investors begin to see the Euro as a poor choice and start moving to the dollar instead. This would greatly strengthen the dollar and make our goods much more expensive overseas. The result could be a big recession here.

  10. #10
    Well, Italy sold its one year bonds, not at a great yield but at least below the magic 7%. That means things will likely muddle on for the short term, maybe even with a slight uptick in the euro.

    The problem comes next year, when Italy has to refinance a much larger amount of multi-year bonds. Without massive quantative easing by the ECB printing money, which the Germans will be aghast at, there does not seem to be any way to avoid default at that time. The real question is whether the Germans will stick to their guns or cave. But I guess that also gives them time to crank up the mints and printing presses, and preparing a new Deutsch Mark.

    There are new, more presentable governments on the table in both Greece and Italy, but that is a bit like rearranging the deck chairs on the Titanic. The iceberg of Italy's huge debt rollover next year is still dead ahead.

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