Is the Euro Finished?
Currencies / Euro Nov 22, 2010 - 04:11 AM GMTBy: Kevin_George
In 2008, Irish finance minister proclaimed that in shoring up their toxic banks that it was “The cheapest bank bailout in the world!” Two years later and this cost was ‘expected’ to rise to €34bn. Fast forward to the present and the confirmation that Ireland has been forced to seek assistance from the EU/IMF totalling around €80bn.
So what’s next? Portugal? Spain? As we have seen following the Greek bailout, the sovereign problem merely transfers to the next country buried under an avalanche of debt to be refinanced, amidst a backdrop of spluttering global growth and rising bond yields.
Ireland has clearly been strong-armed into this arrangement, after EU and even U.S. delegates rolled into Dublin in order to ‘fix’ Irelands problems. As many have noted previously, the interconnected web of debt, which amounts to trillions, is a threat to the stability of the global financial system. UK banks alone are exposed through loans to Irish households and companies, to a massive £83bn. Default will not be tolerated by the power brokers of the european union who seek to maintain their monetary regime (and their jobs) despite it’s failings being exposed by the current crisis.
The euro currency and the entire union concept is at risk now. The problems have been swept under the rug once more as the heavyweights of europe have been forced to add more burden to their record post-war debt situations but they will not disappear. There is a real risk of political and social instability amongst the nations who are being forced to pay the lion’s share of these bailouts. Will Germany or France pull out of an arrangement, which is proving to be much more give than take? This would render the euro obsolete as its value would simply plunge to represent the collection of debt-ridden, low-growth, deficit-cutting nations that remained.
Even if all nations were to remain, growth expectations have always been overly optimistic. Once it becomes clear that growth will not outpace rising liabilities, the real problems will start and the value of the euro will be adjusted accordingly.
By Kevin George
In 2008, Irish finance minister proclaimed that in shoring up their toxic banks that it was “The cheapest bank bailout in the world!” Two years later and this cost was ‘expected’ to rise to €34bn. Fast forward to the present and the confirmation that Ireland has been forced to seek assistance from the EU/IMF totalling around €80bn.
So what’s next? Portugal? Spain? As we have seen following the Greek bailout, the sovereign problem merely transfers to the next country buried under an avalanche of debt to be refinanced, amidst a backdrop of spluttering global growth and rising bond yields.
Ireland has clearly been strong-armed into this arrangement, after EU and even U.S. delegates rolled into Dublin in order to ‘fix’ Irelands problems. As many have noted previously, the interconnected web of debt, which amounts to trillions, is a threat to the stability of the global financial system. UK banks alone are exposed through loans to Irish households and companies, to a massive £83bn. Default will not be tolerated by the power brokers of the european union who seek to maintain their monetary regime (and their jobs) despite it’s failings being exposed by the current crisis.
The euro currency and the entire union concept is at risk now. The problems have been swept under the rug once more as the heavyweights of europe have been forced to add more burden to their record post-war debt situations but they will not disappear. There is a real risk of political and social instability amongst the nations who are being forced to pay the lion’s share of these bailouts. Will Germany or France pull out of an arrangement, which is proving to be much more give than take? This would render the euro obsolete as its value would simply plunge to represent the collection of debt-ridden, low-growth, deficit-cutting nations that remained.
Even if all nations were to remain, growth expectations have always been overly optimistic. Once it becomes clear that growth will not outpace rising liabilities, the real problems will start and the value of the euro will be adjusted accordingly.
By Kevin George
kg-publishing@hotmail.co.uk
I am an independent financial analyst and trader.
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