The Euro Is Finished

Includes: EUO, FXE
by: Bo Peng

I thought it was big enough of a joke that the ECB raised rates in July 2008. I mean, there had been many people betting with serious money on the crash of subprime way before that time, and Bear Stearns had already happened. Even I had seen it coming before then. But no, the European elites were convinced that their banks were rock solid based on Basel II, fully hedged with CDS bought from AIG (NYSE:AIG) and all. They were enjoying from across the pond how U.S. had to scramble to put out some fire somewhere every Sunday night before Asian markets opened. And they thought "we're so cool we have to do something to slow things down around here."

Then Lehman happened. Intentionally or not, Lehman (OTC:LEHMQ) was America's big middle finger to Europe, U.K. included (it was completely uncalled for for FSA to block the Barclay's (NYSE:BCS) deal on Lehman in Sunday afternoon). From then on, it was no longer an American problem. The game would become "who can take the most pain". And nobody could take as much pain as the good'ol US of A.

I thought Europeans would have learned the lesson from Lehman. I'm often wrong in 'mis-underestimating' people's stupidity, myself included.

As if it's not enough for EU to fumble for months before they could manage to put out a measely 110B Euro package for Greece, and appearing thoroughly exhausted to do anything for the upcoming certainty of PIIS funding crisis. On Wednesday, the EU had to come out with a revised-up growth forecast in the Eurozone. They basically said "ok, now we have the Greek crisis blowing up and we're going down the drain, we have to revise the growth projection from 0.7% to 0.9%, you know, just in case anybody still believes us".

Can anyone be more lunatic and delusional than this?

In Germany, in post-EUR new Mark terms, quite possibly. But in Eurozone as it is today? I want to bet against that with a leverage higher than the pre-crisis Lehman.
It's hard enough to keep a monetary union without political union from falling apart at the first sign of stress. It is based on this insanity I finally found the courage to say that EUR is finished. They'll be too late to the game, as they have consistently been so far. BTW, it's not for their lack of intellegence. No, they're plenty smart. It's for the political hurdles that they simply cannot get around.

I want to buy some post-EUR new Mark forwards, now. Let me know if you're interested in the trade.

Disclosure: Long EUO