More Mess for the Euro

Looks like the EU finance ministers are asking a basic question… IE, “Anyone with ideas?”

By requiring Greece to implement additional austerity measures (such as hiring the proper accountants Edinburgh to rake up proper numbers), the EU finance ministers have pulled a Pontius Pilate move. If Greece doesn’t implement the measures, it’s not their fault. Technically, their hands are clean.

Greece won’t implement the measures and it will have to default. After defaulting, it will have to pull out of the euro if it wants any hope of recovery, and the EU ministers will need to recognize that. The euro is a political currency that’s supposed to tie Germany economically to every nation on the continent so it won’t start another war, sort of the opposite of the idea after WW1… Now, though, the rest of Europe doesn’t necessarily want a tie with Germany if it means hampering the local economy. The political will to hold the euro together seems woefully lacking.

I’m not going to provide timing signals, but you can bet the number of currency trading newsletters that will advise readers to short the euro is going to increase with each passing week. It’s going to lead to a speculative run on the euro, which will last until the involved governments defend it no more and impose financial tyranny on the speculators. Those that get in at the start will make some tidy sums, those that run the game in the middle will get big rewards, and those at the very end will make all or nothing, depending on how good their internet connections are at the time the EU pulls the plug on it.

I recall the currency runs of 1997. Indonesia, Thailand, Taiwan… all the little tigers fell, one by one. Then the raiding funds targeted Hong Kong and lost big when the PRC said it would defend the HK dollar. Back then, it had the means to do just that. Now, in 2011, we have a set of governments that are ready to defend the euro. They say, “whatever the cost!”, but we all know their financial systems are weak from the fallout of the 2007-8 crisis. The euro will fall, they will prop it up, it will fall some more, they will prop it some more, all the while with the euro losing value over time. Once the EU banks can defend it no more, there will be a time period where the euro falls mercilessly and everyone shorting it will laugh all the way to the US-owned bank… I suppose the last laugh will be Europe’s, though, after the US banks collapse because of they way the US financial system was insuring European assets.

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