By Mark Dampier | Thu 02 December 2010 The Euro zone debt contagion problems continue with the Portuguese now under the spotlight, but with pressure also building in Spain and Italy, it’s really difficult to know how this is going to play out. Euro sceptics believe this will ultimately lead to its break up, other commentators say this is impossible. As the situation progresses the more it feels like the summer and early autumn of 1992, when we were told that Sterling leaving the European Exchange Rate Mechanism (ERM) would be impossible. There is huge political weight behind the Euro and this should not be underestimated as it often has by Euro sceptics. But politics is an even darker science than economics, so my crystal ball is very cloudy. If I try and ignore politics for one moment let’s look at the economics of it. Is it in the interest of Germany to leave or break it all up? Superficially the Germans themselves will not be keen on continual bailouts. But Germany is a booming economy right now. The very weakness of the euro has been a major benefactor for the German exporting economy. A break up of the euro and a return to the deutschemark would almost certainly mean a huge rise in that currency leaving their exporting firms far less competitive. At the same time the money owed to German banks would immediately be devalued so it's hard to see how it's in Germany’s interest to see an end to the Euro. None of this stops the speculation, but this crisis won’t end unless a proper economic and political solution is put together. Rather than trying to stop the leaks in the dam it looks to me like the dam needs to be rebuilt and very quickly.Euro woes
Thursday, 2 December 2010
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