Collapse of the euro is 'inevitable' says French Banking Chief

Discussion in 'Economics' started by pspr, Feb 13, 2010.

  1. pspr



    The European single currency is facing an 'inevitable break-up' a leading French bank claimed yesterday.
    Strategists at Paris-based Société Générale said that any bailout of the stricken Greek economy would only provide 'sticking plasters' to cover the deep- seated flaws in the eurozone bloc.
    The stark warning came as the euro slipped further on the currency markets and dire growth figures raised the prospect of a 'double-dip' recession in the embattled zone.

    Claims that the euro could be headed for total collapse are particularly striking when they come from one of the oldest and largest banks in France - a core founder-member.

    In a note to investors, SocGen strategist Albert Edwards said: 'My own view is that there is little "help" that can be offered by the other eurozone nations other than temporary, confidence-giving "sticking plasters" before the ultimate denouement: the break-up of the eurozone.'

    He added: 'Any "help" given to Greece merely delays the inevitable break-up of the eurozone.'
    The alarming claim came a day after European Union leaders promised 'determined and co-ordinated' action to shore up Greece's tattered public finances, but disappointed traders by failing to provide specifics.
    Further details are expected early next week, but markets were in high anxiety yesterday amid fears political divisions among rich eurozone members could derail any rescue.
    The euro slid almost 1 per cent to $1.357 yesterday, meaning it has lost 10 per cent of its value since November. The pound rose to 1.14 euros.
    Earlier this week Business Secretary Lord Mandelson's claimed that the single currency had been a 'remarkable success' and that it remained in Britain's interests to join.
    David Cameron ridiculed that claim yesterday.

    He told the Tories' Scottish conference: 'Are this Government the only people in the country who still think that would be a good idea? Our deficit and debt are bad enough without the straightjacket of the euro.
    'If I am elected for as long as I am prime minister the United Kingdom will never join the euro.'
    The French bank's warning was echoed by Mats Persson, Director of the Open Europe think-tank, which campaigns for reforms in Brussels.
    He said: 'The eurozone is facing a fully-fledged crisis. The Greece episode has made it painfully clear how flawed the euro project was from the very beginning.
    'Even if Greece receives a one-off bailout it would not solve the real problem, which is the huge differences in competitiveness between the eurozone's richest and poorest members.

    'If these differences are to be evened out, the EU would need a single budget and common taxes so it can redistribute resources.
    'One thing is clear, Britain made the right choice in staying out.'

    Mr Edwards argued that Portugal, Ireland, Greece and Spain are too economically weak to withstand the rigours of eurozone membership.
    Countries that are highly uncompetitive are normally able to slash interest rates and devalue their currencies to prop up their economies.
    But this is not possible within the euro, given its one-size-fits-all economic governance.
    The implication is that weak, peripheral eurozone members will have to suffer years of painful deflation and tumbling living standards, as well as draconian budget cuts, in order to adjust.
    Harvard University Professor Martin Feldstein, a long-standing sceptic on the euro, yesterday said the single currency 'isn't working' because member governments have no incentive to keep their public debts under control.
    'There's too much incentive for countries to run up big deficits as there's no feedback until a crisis,' he said.

    Germany drags EU back towards recession
    Axel Weber, President of Germany's Bundesbank, warned the German economy will contract this year
    The eurozone faces the danger of a 'doubledip' recession after Germany's economy retreated into stagnation.
    Figures published yesterday revealed that the countries who have joined the euro collectively grew a mere 0.1 per cent in the fourth quarter of last year - equal to Britain's own faltering performance.
    Germany was the biggest drag, recording zero growth in the final three months of 2009 after emerging from recession earlier in the year.

    Axel Weber, President of Germany's Bundesbank, warned this week there is a chance his nation's economy will contract in the first quarter of 2010, in part because of the severe winter, in a major blow to recovery hopes.
    The figures from the European Commission are a blow to Britain's embattled manufacturers, which count the eurozone as their biggest export market.
    France provided a bright spot in the report, expanding by 0.6 per cent in the fourth quarter-But Italy, Spain and Greece all registered contractions in their gross domestic product.
    Economist Martin van Vliet of ING Bank said: 'The paltry pace of fourth quarter growth makes crystal clear that the eurozone economy cannot yet stand on its own feet.

    'The disappointing eurozone growth data are a sobering reminder that recovery from financial crisis led recessions tends to be slow and protracted, and might not prove very supportive in calming markets' fears about the region
  2. This could create a boom of opportunity for Forex arbitrage, as the Euro sunsets into history and and the Eurozone fractures into dispirate currencies. I only wonder if Gain Capital and the others will accomodate this change in a timely manner.
  3. This Edwards guy is a giant bear on everything.

    I wonder how he advices his clients to protect themselves.
  4. ddefina


    With all the US State governments about to seize up, and the almost failed Treasury Auction, looks like most of the 1st world will be joining the 3rd and 4th soon? Too bad we can't just reset everything and start over so we can do it again in 20 years.
  5. C6H12O6


    The right choice indeed. But not for UK: for the Euro.
    If UK had the euro, Germany should now bailout them too :D
    and the british hole is far deeper than Greece's
  6. C6H12O6


  7. I find it funny that all of the people predicting a collapse of the Euro are the ones that have the most to gain?

    Time and time again I hear about how British and American analysts seem to understand the Eurozone and how it works. Hey here is a thought, maybe they don't!

    I have lived in the Euro-zone, in the UK, and in America and let me tell you most analysts outside the Euro-zone don't get the Euro-zone.

    A fixed income trader told me the reason that the Eurozone is safe for the most part is that it is self funding. When Germany needs money they can go to the ECB and the ECB in turn gives them the money.

    What is causing people to get their panties in a bunch is that the ECB cut off the easy money to Greece. And this is where Greece is caught. They need money, and lots of it. But the ECB said, "no you need to clean up your act." Greece then tries to sell and get money from the market and China. End result Greece has to pay a fortune for the money.

    This is the problem plain and simple! And this is what is people in the Euro zone are getting mixed up! Why do you think that the US rates are so low? Because the Fed is sucking up all of the debt and putting it on their balance sheet.
  8. Walk through the streets of a typical British city, then walk through the streets of a Greek city. The differences in economic and social progress are shocking to say the least.

    Going to Greece is like taking a time machine back to the 1950s. Goats in the streets, children with bare feet playing in the yard. Old folks with no teeth. A grand mom making some yogurt as the sun goes down. Labor productivity per hour is some 40% below Germany. As per your comparison, the UK is "only" 10% below Germany and the implosion of their currency only helps make them more competitive. The Greek alongside Club Med no longer have a separate currency that the markets can use to adjust in order make up for their miserable productivity. They have the EUR pulling them down like an iron ball chained to their feet.

    Make no mistake, the UK is in a lot of trouble, but the UK has a chance to dig itself out of its hole over a stretch of a decade or two. Devaluing Sterling (making imports less attractive) even more, thus increasing exports, painfully hiking taxes gradually, paying off debt, printing money. There's no guarantee this will work out, but it's a scenario that at least has a remote chance of success.

    What does Greece have? What are the perspectives, considering the disastrous productivity, widespread tax dodging and shadow economy, the unemployment among the young and the fact they're bound to the EUR? Nil. Just endless pain without a realistic chance for recovery.

    The best thing that could happen to Club Med ironically would be a military coup or right wing group taking power in Germany that would take Germany out of the EU and EUR zone overnight. The EUR idea would collapse within days and Club Med would have a chance to take the right medicine to recover. They could default on part of their debt if necessary, then float a new currency and start over.

    Obviously, the chances for this to happen anytime soon are slim. The Germans will bail out their European brothers until the bitter end. Until there are riots in the streets of Berlin of disgruntled tax payers who don't understand why they have diligently been saving 15% of their disposable income for the last 50 years for the "rainy days" just so their good money is now thrown to the PIGS in the south. This charade will fly with the German proletarians only so long.
  9. More hyperbole bullshit.
  10. nitro


    #10     Feb 13, 2010