What Will Happen To the Euro?


There has been much talk about the Euro currency and the Eurozone in general. It should be noted that it is the way the Euro currency is managed that can change – not the physical land, or the societies of Europe. All sorts of options that were unheard of a few years ago are now being discussed. The idea of breaking up the Eurozone treaty seemed ludicrous in the past, but there have been studies done to see what would happen if one or more countries left the common currency agreement. (1) (2) (3) Then there is the idea that bigger and bigger bailouts are the answer, made possible by larger and larger pools of money by central banks. This happened recently in announcing a coordinated effort among 6 central banks – including 4 of them that are not in the Eurozone. (4) This week, the idea of controlling the budgets of various countries was floated as a way to keep countries fiscally responsible. (5) (6) (7) It is hard to know what will be the result of all of this drama, but the crisis will not be over on Monday. Whatever gets decided, or not decided at the meetings on December 10th will not be the last news on the topic. There is over 1 Trillion Euros worth of refinancing by governments alone due in 2012 that is known at this time, which will create more of the same story for at least next year. (8) All of the solutions proposed to date have resulted in the amount of debt increasing, which will cause more financing to be needed in the future. At some point, either the piper will either have to be paid completely, or another creative solution would come forth. This brings up the last point of this post: does it really matter? Currencies have come and gone in Europe, but the land and its people are still there. Is the Euro currency the issue, or is it the management of it that needs to be looked at? (9) It may be a question of how to go from the current system to another one.

 

1)      http://www.dowjones.com/products/djfxtrader/articles/ForexProcessorCLSBankTestingEuroBreakupScenario-Sources.asp

2)      http://www.prnewswire.com/news-releases/early-warning-system-for-euro-break-up-scenario-96431124.html

3)      http://redicecreations.com/article.php?id=16715

4)      http://www.theglobeandmail.com/report-on-business/international-news/central-banks-turn-on-the-taps/article2254698/

5)      http://www.praguepost.com/business/11270-fiscal-union-touted-as-solution-to-eurozone-crisis.html

6)      http://www.bloomberg.com/news/2011-12-08/draghi-says-ecb-to-lend-banks-more-to-avert-credit-crunch-as-key-rate-cut.html

7)      http://www.europeanvoice.com/article/imported/eu-leaders-prepare-to-re-open-lisbon-treaty/72861.aspx

8)      http://www.bloomberg.com/news/2011-12-02/banks-vie-with-nations-to-sate-2t-need.html

9)      http://www.forbes.com/2011/06/24/euro-versus-eurozone.html

 

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About joetheinvestor
Joe Barbieri has Bachelors degrees in both Civil Engineering and Commerce from the University of Toronto. He has worked in the Financial Services field for over 12 years, covering positions from Retail Customer Service and Fund Accounting, through to Investment Research on the Institutional side. He has worked in 5 companies, spanning banks, a mutual fund, a Consulting Firm and a Large Canadian Pension Plan. He currently has a Chartered Financial Analyst designation (CFA) from the CFA Institute. He has recently published articles in Pension and Benefits Monitor Magazine as well as the Internet.

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