Nov

17

This article on Bloomberg provides good support to the Euroskeptics: "Euro Dominos Will Fall Until Currency Is Split"

The idea is that there is a domino effect at work. This process isn't going to stop until the euro is taken apart. First Greece went bust (is it over?). Now Ireland is on the brink of a bailout. Portugal is next, and why not Spain and Italy. In each country, it will be a different trigger that causes a collapse, but the root is the same. The economies are too different for a single central bank. This crisis will involve country after country. The only fix is splitting up the euro according to the author.

I think that what is happening in Europe is dramatic. With the slogan "the show must go on", in order to maintain the same living and welfare standards, each government for sound (?) political and internal stability reasons has decided (or there was no other choice to avoid a collapse?) to let the deficit grow, hoping that the crisis would go away after a reasonable time. However, what does "reasonable" mean? What we are missing is that the transfer of wealth toward other regions of the world is not temporary. It has become structural unless our countries are able to change significantly their social and industrial policies. Meanwhile, unless serious and unpopular measures are taken, the domino effect will continue sinking the Euro. We have to become "poorer" and lower our expectations.

This is the issue that also the US is facing. And Quantitative Easing is not the right answer. The question between the Euro and the dollar is who is going to sink first. So far, with the Euro at 1.36 it seems that a certain balance is maintained (agreed?). However, last May was the first attempt (and may be warning) that the Euro is the weak link of the chain.

Paolo


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