Tuesday, December 16, 2008

The coming fortunes of the Euro

Readers will recollect my drawing attention to the fragility of the Euro in a recent post.

The Euro has been increasingly popular since its launch nearly ten years ago - but particularly popular since the dollar started declining, and even more wildly popular since the start of the current crisis.

However, since I wrote about it (but I am sure not for that reason!) there has been a dramatic increase in yield spreads if you compare German government bonds to Greek and Italian government bonds.

The current financial and economic crisis will soon spread to Spain. Then watch that spread in yields widen.

Watch also calls for more unified regulation and supervision, and indeed economic and political cohesion in the Eurozone.

The Eurozone will then either then fall apart, or it will move much closer together. However, the latter course of action will be against the popular will in Europe, and it will cause increasing discomfort to Southern, Eastern and perhaps even some parts of northern Europe. Further, the Eurozone will then face the challenge of compensating the suffering of the south, east and possibly north - and of course the compensation will have to do be done by parts of the EU that are richer. In fact, however, these "richer" parts of the Eurozone are not as rich as they used to be. So a move to greater cohesion may enable the Euro to survive but, if the Euro survives, it will do so at the cost of a greatly weakened Euro. Sphere: Related Content

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