Will the Euro Survive?

Several weeks ago Rick Santelli asked on CNBC if the traders in Chicago wanted to pay their neighbors mortgage? The resounding answer was: Mr. Obama, NO!

Well almost the same question is being asked in the euro zone. The Germans are asking themselves if they want to pay for the foolishness and greed of the Austrian Banks or the Irish Banks. These banks and others made loans greater than their GDP to Eastern Europe. Now Eastern Europe is following in the path of the Asian Tigers in 1998.

One country after the next is begging the IMF for a bailout. In the streets of the former Baltic Tiger Latvia, street demonstrations are leading to unrest. The countries of Greece and Spain are having tremendous economic problems. This is leading to the question will Germany bail them out. What would happen if the Germans decide not to. How about, Can the Germans really help them. Austrian banks gambled so much on Eastern Europe they can bring down not just their economy but their neighbors.

Putting this into perspective, Is it possible the Euro dollar can unravel? If it does unravel what will be the dominoes that fall?

What do you think? Will the Euro Dollar survive?

Comments

[Firat Ünlü:]

Germany cannot, there's not enough money going around to finance even the additional debt that's being planned right now, Germany's already had a few failed bond auctions. Germans want their finances to be in order, especially after the sacrificies of the Schroeder years.
Euro bonds could be in the pipeline as a last resort but, imo, there's only so many countries the Germans can 'carry', you can't expect a nation of 80m, which is still struggling with a costly reunification, to shoulder the burden of 300m people.

Mar 02 05:49 AM

[mangiamillie:]

This is a non article. The writer threw some news bits together and then didn't have the courage to predict whether the EURO would survive or fail.

Mar 02 08:15 AM

[Duude:]

I have to agree, Germany will go back to the deutsche mark rather than go down with this ship. The Deutsche bank is a very conservative institution, even hyper-inflation minded. They learned through the difficult 1920's when hyper inflation brought Hitler to power. This will snowball and likely lead to some Eastern European bankruptcies. This takes the EC back a few steps from their eventual goal. If Germany bails on the Euro, put a fork in it.

Mar 02 09:21 AM

[kelm:]

The entire Euro project required an enormous input of political capital and will power to achieve but it was created by a different generation and that is the risk. Merkle/Sarkozy may not have the same commitment as Kohl/Mitterand for example. Personally, I think the Euro will survive but we will get to see what the consequences are of letting Euro members fail and Euro banks fail. It would not surprise me if certain nations withdraw and the Eurozone contracts back to the original set. Clearly expansion has not come with commitment by the senior members. This crisis will also serve to strengthen the monetary union if the leaders use it as an opportunity to do so.

Mar 02 09:34 AM

[manya05:]

Agree with mangiamillie, a non-article, just an opinion poll...give me a break! But if you want my answer, of course the euro will survive, do you really think countries will dust off their relic currencies and trot them out again to be shot down in the turmoil of today's forex? the euro will stay, and because it represents a large, diversified, and strong economy, it will do very well in the long term (short term it will hit some bumps). There is good to come out of this crisis in the eurozone (we see the beginning of it). It is indeed foolish to have a common monetary policy with disparate fiscal policies, and that is exactly what Europe is trying to work through now, reconcile the fact each country is run by politicians with protectionist tendencies (as they should, they were voted in just by those within their borders, not the eurozone). But mechanisms will be created to guard against europrotectionism, and eventually things will improve. After the dust settles on this mess, watch for the UK to join the eurozone...mark my words and hold me accountable...I say in 5 years, 10 max, you will be buying your crumpets in London with euros.

Mar 02 09:45 AM

[American in...:]

Anyone who thinks that any European country will leave the Euro so that it can experience the same problems as Hungary or the Baltic States has got the logic backwards.

The Euro is the umbrella for Europe. Very few people are going to step from under the umbrella when a storm hits.

By the way, Germany has the largest economic stake in Eastern Europe. Both in direct investments and exports.

Sometimes I feel my American compatriots need to do more homework ...

And it would be nice to see someone to actually back up with figures these claims of calamity. I don't see anyone providing real figures. But I do see a lot of fear mongering.

Mar 02 09:52 AM

[fahrender:]

As an American living in Germany, not far from both the Polish and Czech borders, I can't say that I have any answers about the Euro or EU member countries but my opinion is that the Euro will survive. With what modifications nobody knows at this point but, the Euro is one of the three most important currencies in the world and it's likely to continue to be so.

Mar 02 10:36 AM

[logicalsinger:]

I do not wish the Euro to fail, I generally like Europe and Europeans. but if it does, maybe the Europeans will stop acting all superior. For a while there, they were celebrating our demise, and then the roof fell on their heads too.

Mar 02 11:25 AM

[EUARTE:]

I admire Europe in a general way. Certainly she is the mother of my culture. Alas, she has too long been in the grip of leftist socialism and anti-Americanism. With this in mind I wish them little luck.

I think the Euro will survive. Nobody wants to go through the uncoupling. However, I must remind myself that this was all put together for the benefit of Germany and France. If they see it as no longer being in their direct interest.....goodbye EU and Euro.

The biggest mistake the Europeans made was the fantasy of a nation called Europe. The concept of a customs union was good and benefited all. When they let themselfs be carried away by the European elites the mess began. The only reason for the EU was for permanent jobs for the left elite. The other reason was the on-going fantasy of anti-Americanism.

Germany understands the loming of Russia and will offer some plan to make sure Eastern Europe does not fall too far. France has only one interest....France. She will walk out the minute she sees no financial interest in a united Europe. She already sees that it has brought less power than expected.

As for Iceland, Ireland and Austria. Honestly, nobody cares. It is unkind but quite true.

What happens to the dollar with a non-€ world. I have not a clue.

Mar 02 12:13 PM

[IronMeteor:]

The Euro probably won't survive through early 2010, at least not with the same makeup of countries.
For some reason, everyone keeps referring to Germany, as if the Euro was just Germany. You are forgetting about the PIIGS.

Ireland is so bad, they are calling this the worst disaster since Cromwell. For those of you who don't know Cromwell, he was a Brit who invaded Ireland in the 1600's. I know its bad when only on invasion is worse.

Spain has the worst unemployment of any EU member at 13.9% and climbing quickly.

Italy, Greece, Portugal are just as bad.

I am a fan of the ECB and their monetary policy, so I am not suggesting that this is a failure of leadership. This is simply a depression scenario that wasn't foreseen and can't easily be contained. A monetary union just can't work in this environment. Although it looks to be shielding many countries from Banking crises, it's not, it's just delaying them. At some point this year, Ireland will come for Billions of Euros. I don't think Germany is going to pay up. Game Over!

In the remote chance Ireland skates by, then will Germany also pony up for Spain, and the real problem child Austria and its insolvent banking system. These are just a few of the problems we can see, how many more unforeseen problems are lurking out there.

I would prefer a breakup myself as I would rather own the German Mark than the Euro. I want a pure play on the Germans, not a 30% play that includes the PIIGS.

The Euro has one small chance to survive, although it seems remote. It requires the ECB talk the Euro down dramatically to help the PIIGS. This could relieve the political pressure somewhat and help the PIIGS, especially if its via the British Pound.

Otherwise, it really is game over.

(Intellectually, this can't happen. Politically, anything is possible when people are rioting in the streets and you have a 20% unemployment rate.)

Mar 02 01:12 PM

[robert.b.fe...:]

I would guess, and that is about all any one can do right now, that the Euro will survive. That being said some of the eastern Euro zone will find them selfs back in the orbit of the Russians. Like it or not the bear is back and calls him self Putin.

Mar 02 04:37 PM

[twitee:]

EU has no credit system in place......At least, in USA, if you miss a mortgage or credit card payment it will result in a lower credit score......so there is some checks and balance in place......In Europe there is no such a thing....European do not have a clue how other people taking advantage of the banks by simply changing their address...etc....At least in the third world countries there is no credit system and people buy everything cash...in Europe they give you credit they have no way of tracking it.....Europe population is too OLD.....they are too lazy to work...their system promotes doing nothing and collecting government money....will Euro survive? not they it is structured

Mar 02 06:39 PM

[tmorris007:]

No homework required, this is an open book test and the text has nothing to do with quantitative analysis and everything to do with political and national, self interest. Stop looking for facts and figures to explain it's fate. It will be determined by the realities of each sovereign's assessment of what is in the best interests of their individual economies. A union this divided will ultimately unravel..

Mar 02 09:52 AM American in Paris wrote:

> Anyone who thinks that any European country will leave the Euro so
> that it can experience the same problems as Hungary or the Baltic
> States has got the logic backwards.
>
> The Euro is the umbrella for Europe. Very few people are going to
> step from under the umbrella when a storm hits.
>
> By the way, Germany has the largest economic stake in Eastern Europe.
> Both in direct investments and exports.
>
> Sometimes I feel my American compatriots need to do more homework
> ...
>
> And it would be nice to see someone to actually back up with figures
> these claims of calamity. I don't see anyone providing real figures.
> But I do see a lot of fear mongering.

Mar 03 01:09 AM

[terryg8:]

Will the Euro survive? Of course, but that is not my concern. My concern is how will it fare visa vie the dollar. I think many European countries not only are faced with major meltdowns in Eastern Europe with the resulting losses for many banks but are also faced with the losses from their holdings in American MBS investments. All currency is now an ugly baby contest and while the dollar is hardly on solid ground, I believe the dollar will outpreform the Euro by a long shot. I hold EUO for this reason.

Mar 05 02:24 AM

[Maximus:]

Agreed.

Of course no weak country (read: PIGS+Ireland, Austria, etc.) wants to leave the euro, but that is beside the point.

The point is that economic reality might force them to leave.

Argentina did not want to breaks it currency board that ensured a 1:1 backing of every peso in circulation with dollars since it overcame its historic inflation problem.

The rigid exchange rate regime though stifled domestic manufacturing as local manufacturing became too expensive. Public sector borrowing crowded out the private sector and interest rates soared as investors demanded higher and higher rates on the country's sovereign debt.

A similar situation is brewing in Spain, whose unemployment rate is skyrocketing and economy has skidded to a halt. Euro membership has made labor quite expensive and Spanish exports are uncompetitive. The country is running an appallingly high trade deficit and the government will have to spend well beyond the 3% budget deficit limit for euro membership. Inflation has been higher than in other European countries and the last decade's low interest rate environment (the result of euro membership) funneled money away from more productive investments and into a housing boom. Spain's complicated macroeconomic picture has caused spreads on Spanish sovereign debt rise with respect to German bonds.

I can conceive a day after years of deflation and no growth when a country like Spain might suspend its membership in the euro when it can no longer tolerate the high price it must pay.

The only way unproductive countries can compete is through currency devaluations.

On Mar 03 01:09 AM tmorris007 wrote:

> No homework required, this is an open book test and the text has
> nothing to do with quantitative analysis and everything to do with
> political and national, self interest. Stop looking for facts and
> figures to explain it's fate. It will be determined by the realities
> of each sovereign's assessment of what is in the best interests
> of their individual economies. A union this divided will ultimately
> unravel..
>
> Mar 02 09:52 AM American in Paris wrote:

Mar 07 05:50 PM

[Pubpolitician:]

I think your right, Spain is a big holiday destination, especially for Brits. But its very expensive now and people are looking elsewhere, gotta hurt there economy.

Apr 07 03:53 AM