"Euro will be dead in five years"

[Skybird]

Originally Posted by Tchocky

Great thing about gold is that you can eat it in a crisis.

In case you are not ironic, but mean you can trade it for bread when money has no meaning anymore, you are right.

[UnderseaLcpl]

Excellent analysis, all-round, Sky. I completely agree with you, but probably for different reasons.

The Euro is tanking because the E.U. thought it could do the same thing the US does; borrow heavily or assume debt and largely ignore the consequences. Not all nations in the E.U. are as much to blame as others, but the E.U. as a whole assumes ultimate culpability.

What the E.U. has effectively done is to debauch its own currency, which is the surest way of destroying any economy. The US has been heavily debauching its own currency for quite some time now, but it survives because the dollar became the international reserve currency before anyone else could claim the title, and in a bigger way to boot.

What the E.U. apparently did not realize is that when faced with an inflationary crisis, is that investors - both state and private, will flock to the currency that has traditionally demonstrated the most stability. In this case, it's the dollar. They buy dollars, which are heavily buoyed by the incredible GDP of the US, thus reducing the supply of dollars, thus increasing the value of each dollar at the expense of their own economies.

Europe needs to undergo a major correction of this fiscal policy, as you mentioned. I believe that the market would do this most effectively, and perhaps you have your own ideas, but in any case we are agreeed upon the fact that the change will be painful.

My beliefs are colored by Milton Friedman's observation that inflation is like a drug for nation-states. Few people like taxes, but everyone loves getting free stuff. Thus, printing currency or devaluing currency to pay off debts incurred by public expenditure is a very popular political move. People see the benefits immediately, but they often fail to notice that their unit of currency buys less today than it did last year, or they blame the fact on other factors.

Like any drug, the greater the "high" is, the greater the corresponding "low" will be. And like any drug, the "lows" are a lot more permanently damaging than the "highs". Even worse, you'll need a greater high each time to overcome the previous low, hence the trend towards exponential inflation.

The US is something of a special case, because of our unique position, but we can't keep this up forever. When we go down, it's going to be painful for everyone. Economies around the world will be thrown into chaos as the price system undergoes a radical restructuring. No amount of E.U. fiscal reform is going to change that.

My greatest fear is that after the fact someone will try to step in and introduce a global currency. God help us if that ever happens........and now I'm going off on a tangent.

In any case, good analysis, Sky

Well Sky, I have nothing to add.
You covered the entire topic with accuracy.
Our perceptions and conclussions match perfectly.

Well done, sir!

[Jimbuna]

Great points Sky

I'm pleased the UK have dithered so long about whether to ditch the £ or not.....doesn't mean it's any stronger a currency though

[STEED]

Euro 'will be dead in five years'

No chance.

I am a hard core sceptic who has never got it wrong, two million years of gut instinct tells me its here to stay.

I'm going to my local bookies to put a £20 bet on the euro will stay.

[Skybird]

http://www.spiegel.de/international/...699471,00.html

Addressing Gauweiler's latest constitutional complaint, Berlin said that if the injunction is issued, it could directly result in a Greek bankruptcy. The government also stated that the euro rescue package agreed to by the EU member states in Brussels was "not a legally binding international agreement, but merely a political statement."

Just a political statement? Who does the government think it could make believe this nonsense?

Kerber and his supporters plan to challenge the rescue package's legality under both German rules as well as European law, and they would like to see the German Constitution Court also force the European Court of Justice in Luxembourg, the EU's top judicial body, to address whether the euro bailout is legal under European law.

The German court traditionally is friendly towards past german policies of european integration, and only rarely decides against policies the government claism to serve in that function. Last year we have had a ruling that - partially - was such a challenge of wanted obedience to this european integration imperative, but such rulings are not issues often.

That the EU court would rule against what the governments have decided, I hardly can even imagine, for many observers and insiders agree that the record of the highest EU court in opposing offiocially wanted EU policies is everything but impressive. That may have somethign to do with that the judges are being called into office by EU governments, are being payed royal wages, are serving for limited time only - and can be confirmed for another term afterwards by just these governments. This serves as a nice incentive to not bite the hands that feed them.

[UnderseaLcpl]

Originally Posted by STEED

I'm going to my local bookies to put a £20 bet on the euro will stay.

It may stay, but that doesn't mean it will be worth anything. Precious metals are gaining on every currency the world over while the Euro continues a fairly steady drop against the major currency pairs. Consumers, investors, and even entire nation-states are losing faith in the Euro as a medium of exchange. Given the completely unsustainable nature of current E.U. fiscal policy, political discord, and the rising popular sentiment against the E.U., I don't see the Euro maintaining its status as a viable currency.