Just as two years ago I was pointing out how inevitably and slowly
the economic crash was coming now Lam Halliogan sticks to his view
that the euro is doomed!
The end of the 17 country euro as it stands is equally inevitable but
equally slow in reaching its denouement.
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SUNDAY TELEGRAPH 22.2.09
This 'crank' sticks by his prediction that the single currency will
not survive
By Liam Halligan
The euro has just surged 2pc against the dollar, up from a three-
month low. Why? Certainly not because the eurozone's economic
prospects have improved.
New data shows a sharp drop in the 16-member states' PMI index - a
bellwether for future growth. The single currency area is still
contracting at breakneck speed, and now faces a 1.2pc fall in GDP
during the first three months of this year.
So why did the euro strengthen? Because Peer Steinbrueck, Germany's
finance minister, indicated the currency union's largest economy
would consider bailing-out weaker members if they defaulted on their
sovereign debts.
Since the euro was launched in 1999, those of us arguing it would
eventually break-up have been dismissed as cranks. But now, by
admitting it "will show itself capable of acting", Germany has
acknowledged bail-outs may be needed, suggesting collapse is a
genuine possibility. The only surprise is that it's taken so long for
the politicians to face up to economic reality.
For some time now, eurozone countries with large budget and/or trade
deficits have been forced to pay high interest rates when issuing
sovereign debt. These problem nations - Portugal, Ireland, Italy,
Greece and Spain - are known collectively in global debt markets by
the unfortunate acronym of "PIIGS".
The gap between their average 10-year bond yield and the rate needed
to sell German government debt - "the PIIGS-spread" - has just topped
200 basis points. Austria has also now joined this high-risk group -
given the exposure of its banking system to the emerging markets of
Eastern Europe.
German Chancellor Angela Merkel refuses to comment on whether Germany
would help eurozone members in trouble. No wonder. As German exports
suffer, unemployment is rising. And after years of budgetary
restraint, German voters won't take kindly to paying for excesses
elsewhere.
But signals coming out of the German Finance Ministry indicate a plan
is anyway being hatched - for countries with better credit ratings to
sell bonds and then lend the proceeds to the ailing PIIGS. In return
for doing this, though, the stronger members will surely want some
say over how the money is spent and when taxes will be raised to pay
it back.
At that point, eurozone voters will become extremely nervous at an
implicit transfer of sovereignty - and the central contradictions of
monetary union will be exposed. I've predicted the demise of the
single currency since long before it's launch. I'm sticking to that
view.
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