The Euro is doomed

I was surprised to see the headline in Friday’s Financial Times “Seven days which shook Europe” looking back over the fall of the Dutch government, the election of Francois Hollande in France and the Greek elections. As I have been predicting for more than a year that Greece will leave the Euro and that this will produce a domino effect which will probably see Portugal, Spain and Italy follow suit, I am surprised that anyone could be surprised by these events. But then I suppose I don’t spend my life swallowing a diet of PR spin from the Eurozone “elite” and their acolytes.

As ever, people are looking in the wrong place for the source of trouble. All eyes have been on the bond market, whereas they should now be on bank deposits as most Greek bonds are now in official and/or local hands so the bond market is no longer playing a central role in the Greek tragedy/farce. There is an old saying that a currency can endure despite a lack of faith in it from foreign investors, but not when it is rejected by its own population (see Argentina in 2001 for details). Greece’s bank deposits have been fleeing its banking system as its citizens fear that they will wake up one day soon and discover that they are New Drachma deposits rather than Euros. When this happens, the €3 trillion of deposits in Italian and Spanish banks are going to try to do the same. This will represent a tsunami which no amount of Eurozone spin can prevent and which will require drastic action - like exchange controls.

Whilst we await these events, herewith a piece of research which tells you why the Euro was doomed from the outset:

 

Comments

[MickC]

But how many banks are going to fall over as a result?

[Grumpy Oldman]

Terry, Where will these people put their money??

[Prohyp]

Yes, no doubt the euro is doomed, however judging by the rhetoric politicians are spouting they are simply unwilling to face the reality that their dreams are shattered.

Given that under the terms of the EU, Greece, or for that matter, any other euro zone country, cannot be expelled for default or failure to meet unrealistic targets, or failure to comply with 'agreed' austerity measures, what do our EU leaders propose? More bail outs to keep the distorted and corrupt, non democratic process alive?

Will our PM, who claims to be a euro septic, and our chancellor, continue to provide funds we don't have to the IMF to keep the charade going? If so where will the money come from? another granny tax? cutting the winter fuel allowance? ending bus passes for the elderly?

None of the above measures would surprise me, especially as our chancellor has kicked the Dilnot report and recommendations for the care of the elderly firmly into the long grass. Whilst Mr Cameron's 'compassionate' urge to increase foreign aid whilst the poor in this country get even poorer appears to outweigh any professed concerns he may have expressed about the elderly and vulnerable.

For some reason the words inmate and asylum come to mind.

[Terry Smith]

To Grumpy Oldman:

I would guess that Italian and Spanish depositors will shift deposits to banks in Eurozone countries they consider to be safer and/or switch to other currencies or leave both the zone and the currency if they can. The Argentinian experience in 2001-02 is salutary in this respect. For Agentinians, switching into US dollar deposits in a bank in Argentina did not save them as they were still within Argentine jurisdiction. Euro depositors in Italy and Spain may conclude that their money is only safe outside the Eurozone.

[Terry Smith]

To MickC: a lot.

[MickC]

To Terry Smith:

supplementary question-which ones?

[Grumpy Oldman]

Thanks Terry. It appears no journalist is answering this. I would personally recommend Fundsmith to all these unfortunate Greeks+Spaniards.

[Terry Smith]

Grumpy Oldman: thank for the recommendation. I hope I could do rather better than their Euro bank deposits or government bonds.