[TheNegotiator]

The whole idea being touted about as the Euro becoming the world's new reserve currency seems a distant memory now. Ireland seemed to have fixed it's problems, Portugal again wasn't great but overall Greece has so far been the major problem. However, it's Italy and Spain that are the major concern. If the spread between their debt and the German benchmark widens, they'll just not be able to afford to pay for much. That ain't exactly a positive scenario for the Euro in my mind.
Now I’m no economist, but I think that the Germans would probably be relatively happy with a slightly weaker currency based on their strong manufacturing industry. Cheaper goods for foreigners = more exports right? But a currency which is potentially going to take a nosedive? An unstable and dropping currency is certainly not going to be that beneficial for a country like Germany. For example, higher resource prices coming from outside the Eurozone are a big factor.
The Swiss Franc is now many investors’ benchmark, although with them pegging the currency to the Euro, which could also prove a problematic stance down the line.
So what of the rumour which was about suggesting there were discussions and even a plan to reinstate the Deutschemark if the Euro turns sour? Well you’ve gotta believe the Germans aren’t happy with the current situation. But what would they stand to gain? Well they would hope to gain stability and I’m guessing the flexibility to allow Greece to default. But would it matter if the Euro without Germany was in turmoil anyway?
Whatever the official line is currently I think it has been at the very least thoroughly discussed. So what do you guys reckon? Any economists and/or fx traders can wade in.

[bobcollett]

Please add a fourth choice

If they leave the euro they will collapse.
bobc

[TheNegotiator]

Fair enough. Added that in as a fourth option for you Bob!

[zdo]

BobC,

I question that belief "If they leave the euro they will collapse."

Real commerce only has slight and short interuptions when a fiat currency 'goes away'
etc etc . Collaspe is a myth. However the concommitant relocations ('dislocation' is the fear word used in the current paradigm lies) of wealth / capital transfer, etc are not myth

See OP
http://www.traderslaboratory.com/for...eurotrash.html
I think Germ, Inc. can keep or discard as many of its new states as it wants.

and btw... globally, it on soveirgn individuals whether or not they are left perpetually on the hook for the fiat financial excesses of , gov't's, banks, corp.'s, others, etc
...as 'villagee' as they are, the Germs still might surprise you in that regard

[steve46]

It is in the interests of the EU to hold together for the long run...although they cannot print money they have many other options. Greece it seems is being made an example of, in the sense that the measures they are taking are going to degrade civil society to the point where they will have ongoing problems for years, perhaps decades. This "example" will I think prompt the other countries including Italy and Spain to take pre-emptive measures to reduce budget expenditures BEFORE things get to this level. Bond holders will take the proverbial "haircut" and several national banks will have to be re-captialized, and it is likely that covered bonds will be implemented (easy to look up the term in Google for those interested). Ultimately there may even be a "Euro Bond" issued to take up some of the slack in terms of financing the ongoing debt of the several countries that are in trouble. Although the process will seem clumsy, because of the many soveigns involved in the problem, from what I am hearing it will be resolved over the next 8-10 months.

The residual however will probably delay economic recovery both in Europe and the US for at least the same time period....causing continued political debate and controversey that will last right up into the US elections. On the horizon for both US and European theatre are negotiations to fix the ongoing mortgage problems by introducing a program to re-price those still existing bad loans and get them off the bank's books. Once this is in place, it will take another 16-24 months to get through the process of removing the overhang of bad debt in all countries. Although there are likely to be structural changes in term of governance for individual countries, for the most part financial institutions expect the Euro to stabilize and remain the common currency of the member nations.

[bobcollett]

Originally Posted by bobcollett »

Please add a fourth choice

If they leave the euro they will collapse.
bobc

Dear Neg.
Please read my post carefully.
Add a comma after euro. My bad grammer.
I will rephrase it
Germany will colapse without the euro
Its friday night. 8.45pm. Another bottIe of dry white darling.
I will explain tomorrow
The problem with these threads is most members are not really interested in mainline economic theory.So the thread progresses 1 page, and the same intellectuals participate.
I am talking to the converted.
regards
bobc

[TheNegotiator]

Bob, I phrased the additional option as such because I didn't think you could mean that the German economy would "colapse" if they left the Euro. It's my opinion that real "intellectuals" draw from all sources good or bad. Debate drives intrigue which in turn brings new ideas to the table, intentionally or not. Us blokes don't really drink white wine in Britain, Bob. Maybe the quality we get isn't very good. I'm sure it's much better in South Africa.

Steve a point I'd make about Italy in particular is that they have been running on such high debt to gdp ratios for years that the measures which they can bring in just may not be enough if the yields are heavily squeezed. It just seems a little bit too systematic in the way it's one country after the other. Call me cynical.

[steve46]

To the extent that austerity measures can reduce expenditures as a percentage of GDP they (Italy and others) may escape the brunt of the problem. With Greece however the issue if already cast if you will because even with austerity as voted on recently AND a haircut of 50-60% they will not be able to generate enough GDP to get back on their feet. The write downs are going to be drastic and (as mentioned previously) the EU will have to re-capitalize several banks and issue bonds in addition to what they are now planning to float....As to portugal and others only time will tell...based on my recent conversation with old colleagues in the industry that is what is currently being debated at troika meetings.