# Could the Euro collapse?



## RMCF (23 May 2010)

I have been reading quite a few articles since all this Greek crisis began, and many are very doomsday in their style.

I appreciate that a lot of this is to sell papers, but what would the likelihood ever be of the currency failing and being abandoned? Likely, or very unlikely?

Also, what would this do to anybody who had a lot of savings in Euro? Is there a potential for you to lose a lot of your value?


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## Marietta (23 May 2010)

RMCF - I don't think anyone has a crystal ball and predict what is going to happen.  If Ireland pulls out of the Euro our currency will be devalued, I have read that some Irish people are opening German savings accounts and transfering their funds into it.  

From today's independent:

Morgan Kelly, a professor of economics at University College, Dublin, said it was no longer a question of whether Ireland would go bust, but when.

[broken link removed]


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## ringledman (23 May 2010)

Most likely a major devaluation through quantative easing before any sort of collapse.

The ECB has held back on printing much so far unlike the US or UK. I cant see how they can now hold back with a deflationary depression taking over many of the EU states.

Jim Rogers reckons 15-20 years before the Euro dissapears-
[broken link removed]

*"the Euro will probably break up in the next 15 to 20 years” because currency unions do not survive and they haven’t in the past.*


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## RMCF (23 May 2010)

Marietta said:


> RMCF - I don't think anyone has a crystal ball and predict what is going to happen.  If Ireland pulls out of the Euro our currency will be devalued, I have read that some Irish people are opening German savings accounts and transfering their funds into it.
> 
> From today's independent:
> 
> ...



These were actually some of the articles I mentioned as having read that were sort of scary.


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## Marietta (24 May 2010)

RMCF said:


> These were actually some of the articles I mentioned as having read that were sort of scary.


 

This particular article send an eerie chill up my spine. I hope he is wrong in his prediction but for some reason after having read it I felt a great unease.


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## csirl (24 May 2010)

Zero chance. The Euro is a currency, not an economy. Abandoning it will not solve anyones economic problems. In fact it would make them worse as the replacement currencies would be smaller and less stable than the Euro. You'd also have the added costs of currency exchange and exchange rate risks. A lot of the hysteria is being whipped up by the UK press who are still reeling at the fact that their currency has collapsed by a third in value during this crisis. Euro is still well ahead of both Sterling and Dollar since the crisis started, so it has been the strongest of the three to date. Do you hear people calling for the abandonment of the Dollar and Sterling*? - no.

*P.S. there are actually a small number of people who are calling for Sterling to be abandoned and UK to enter the Euro.


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## ringledman (24 May 2010)

csirl said:


> Zero chance. The Euro is a currency, not an economy. Abandoning it will not solve anyones economic problems. In fact it would make them worse as the replacement currencies would be smaller and less stable than the Euro. You'd also have the added costs of currency exchange and exchange rate risks. A lot of the hysteria is being whipped up by the UK press who are still reeling at the fact that their currency has collapsed by a third in value during this crisis. Euro is still well ahead of both Sterling and Dollar since the crisis started, so it has been the strongest of the three to date. Do you hear people calling for the abandonment of the Dollar and Sterling*? - no.
> 
> *P.S. there are actually a small number of people who are calling for Sterling to be abandoned and UK to enter the Euro.


 
Csirl, you can't have a currency without political, social and proper economic integration. The only way for the Euro to survive the long term, i.e. the next 15 years or so is for a federalist state to be created. 

Some in Germany, notably their Government may want this but their electorate are starting to see the downsides of Euro membership. 

The Germans (who run the only sound economy in Europe) will not tolerate being in a club of non-poducers and consumer bingers forever.

The dollar and pound are representative of one country a piece, not a collection of 16 nations all in different stages of their economic, political and social cycles. Each of the 16 nations requires different interest rates to be set in order to maintain their economies on firm foundations. 

For example, during Ireland's rampant boom interest rates should have been raised to 10-15% or so to slow the excesses in the system. The Euro prevented this and allowed a credit binge of negative 'real' rates to be set. This was hugely damaging for the economy of Ireland.

You raise the currency exchange and exchange rate risk argument a lot but in the grand scheme of things this is irrelevant. Any positives of having one exchange rate are outweighed by the negatives of not being able to control one's rates. 

In terms of the UK entering the Euro, a few woolly socialists may think this is a good idea but any economist of sense knows it would be a crazy idea. The electorate will also never let it happen. Likewise if sterling faces a serious crises of confidence int he future the BoE can ramp rates up hard to protect the downside (although this doesn't always work ideally it is at least an option). 

Likewise many believe the recent downturn in Sterling is having a good effect in increasing manufacturing orders from abroad and in creating inflation in the system to reduce the debt burden over the longer term. We will see how successfull this is, I believe a strong currency is good over the longer term but at least the UK has the option of control.

The Euro is no different from the dollar or sterling. They will each gyrate against one another the next decade but all will collapse in value over the longer term against the real precious metal currencies and basic staples due to terrible fundamentals. 

When one flawed currency rises against another flawed currency, do not confuse this as a sign of strength! One independent variable rising against another independent variable shows no context of real strength against the real world. 

The fundamentals are what support a currency over the longer term. Fundamentals of running a trade surplus, low debt, budget surplus, high savings rate, etc. The current fundamentals for Europe, UK and US are terrible. 

Measure the Euro against a real currency like gold or silver and a different story is told. Likewise compare the Euro to 'real economy' currencies like the Taiwanese dollar, Singapore dollar, Aussie Dollar or Candadian and it tells a different story of the Euro's so called strength.

The fundamentals behind the Western economies are getting worse not better. Expect the purchasing power of the Euro, pound and dollar to all fall.

If the Euro is to survive long term it needs political and social integration in the form of a federalist state. There is no other option. This half hearted measure at economic integration with each state doing their own thing is doomed to fail. 

Will the citizens of all 16 nations buy into the federalist state? I doubt it. Hence the reason why the Euro will dissapear at some point or strong nations like Germany will pull out due to their citizens having enough. 

The fundamentals always win out in the end. It is the case in any investment or economy. Fundamentals can be thrown out of whack for a very long time but eventually they always win. 

On this basis 'Western' currencies will all fall v Gold, silver and other 'real' currencies over the longer term. Likewise the flawed Euro concept will fail at some point many years from now without a federalist state controlling the 'fundamentals' of the whole block. 

When you sit back and look at it, without total political, social and economic integration how on earth can a currency represent 16 differing countries? it simply can't over the longer term.


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## Protocol (25 May 2010)

Bear in mind that even though the euro has fallen from approx 1.50 USD last year to approx 1.20-1.25 now, it is still above its starting value in 1999 of about USD 1.17.

It fell to under USD 0.90 at one stage.

Indeed, it can be shown that its "fair value" is about 1.20-1.25.

*So this is not really a disaster, merely a reversion to a more longer term reasonable equilibrium value.*

For the official daily exchange rates, see

http://www.ecb.int/stats/exchange/eurofxref/html/index.en.html
http://www.ecb.int


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## csirl (25 May 2010)

> The dollar and pound are representative of one country a piece, not a collection of 16 nations all in different stages of their economic, political and social cycles. Each of the 16 nations requires different interest rates to be set in order to maintain their economies on firm foundations.


 
This is a matter of opinion. A reduction in variables creates stability. Financial systems hate instability. 



> Likewise many believe the recent downturn in Sterling is having a good effect in increasing manufacturing orders from abroad and in creating inflation in the system to reduce the debt burden over the longer term. We will see how successfull this is, I believe a strong currency is good over the longer term but at least the UK has the option of control.


 
You cant have it both ways. Euro falls a bit and its doomed. Pound collapses and its good? 



> In terms of the UK entering the Euro, a few woolly socialists may think this is a good idea but any economist of sense knows it would be a crazy idea.


 
The UK has already lost out a lot through failure to enter the Euro. It has significantly disadvantaged it's industry with exchange rate, currency and transaction risks. Before the Euro, the UK was a first world country. Now large parts of the UK are drifting into the second world. Incomes are low, national debt is huge, standard of living is slowly falling behind the remainder of Europe.


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## ringledman (26 May 2010)

csirl said:


> The UK has already lost out a lot through failure to enter the Euro. It has significantly disadvantaged it's industry with exchange rate, currency and transaction risks. Before the Euro, the UK was a first world country. Now large parts of the UK are drifting into the second world. Incomes are low, national debt is huge, standard of living is slowly falling behind the remainder of Europe.


 
I don't see the UK's position as any worse than the rest of the EU - 

http://news.bbc.co.uk/2/hi/business/10150007.stm
http://news.bbc.co.uk/2/hi/business/10150056.stm
http://news.bbc.co.uk/2/hi/business/10150081.stm
http://news.bbc.co.uk/2/hi/business/10150118.stm

Many of the stats paint a better picture. At the end of the day the whole of Europe is going to suffer a fall in living standards v the rest of the productive world.


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## csirl (26 May 2010)

Stats dont tell the full story. A classic example is the unemployment rate. The figure used for Ireland is the live register. This includes everyone who is signing on for any reason, so the figure is artificially high. For example, in Ireland, someone who is on a 3 or 4 day week, and earning enough to live on, is still classified as unemployed as they are unemployed for part of the week. They wouldnt be classified as unemployed in most countries as their income would be above the threshold for claiming benefits.


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## Chris (27 May 2010)

csirl said:


> Stats dont tell the full story. A classic example is the unemployment rate. The figure used for Ireland is the live register. This includes everyone who is signing on for any reason, so the figure is artificially high. For example, in Ireland, someone who is on a 3 or 4 day week, and earning enough to live on, is still classified as unemployed as they are unemployed for part of the week. They wouldnt be classified as unemployed in most countries as their income would be above the threshold for claiming benefits.



But not including the underemployed is purely massaging the facts. The US is one of the worst culprits for massaging unemployment numbers. If the US measured unemployment the same way it did in the 30s during the great depression (when unemployment was 30%), then unemployment would now be about 20% now. (http://www.shadowstats.com/alternate_data/unemployment-charts)

Just because other countries alter their unemployment rate in fancy ways doesn't make it right. Measuring underemployment is as important as measuring unemployment.


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## ringledman (29 May 2010)

Mr Market always wins in the end. Fundamentals always win out eventually. 

The ECB must print and print and print and destroy the value of the Euro or default. There is no easy way out.


*[broken link removed] *

*Financial Markets Are Protesting Austerity Insanity in Europe *

Justice Litle, Editorial Director, Taipan Publishing Group 
Wednesday, May 26, 2010 

*Damned if You Do, Damned if You Don't*


As with the inflation/deflation tug of war discussed earlier this week, there are two ways the eurozone can go from here, but only one true end game:

In an effort to "save the euro," Europe can move toward *more austerity, more central authority, and a tighter coupling between northern and southern eurozone countries*. Brussels can be given more power over the budgets of sovereign euro-member governments. This power can be used to make even deeper cuts, repeating the Ireland experience of humiliation and worsened economic contraction. And the Germans can be forced to embrace the Greeks, Italians, et al. with even greater bailout fervor. This route would save face for eurozone-loving politicians, at the expense of unleashing the hell of deep recession (or even outright deflationary depression) on the European populace.
Or, alternatively, Europe can *admit the impossibility of the current situation and allow struggling* *eurozone members to default, with the option of leaving the eurozone completely. *This second alternative would also be a kind of hell... but it would be hell for the _politicians, _not the populace. There would have to be a readiness and a willingness to admit that the "grand experiment" known as the euro has essentially failed... that too much debt, mostly accumulated in happier times, has torn the union asunder... and that the idea of disparate countries holding hands and singing financial kumbaya was a pipe dream from the start.
Being the creatures of self-interest that they are, Europe's politicians are naturally going for door No. 1, and will likely cling to the "austerity can save the euro" illusion for as long as they can.

But Mr. Market is firmly and loudly casting his vote for door No. 2... and in the long run, the market always wins.

Don't forget to follow us on Facebook and Twitter for the latest in financial market news, company updates and exclusive special promotions.
_Article brought to you by Taipan Publishing Group. Additional valuable content can be syndicated via our News RSS feed. Republish without charge. Required: Author attribution, links back to original content or www.taipanpublishinggroup.com._​


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## mainasia (1 Jun 2010)

ringledman said:


> I don't see the UK's position as any worse than the rest of the EU -
> 
> http://news.bbc.co.uk/2/hi/business/10150007.stm
> http://news.bbc.co.uk/2/hi/business/10150056.stm
> ...


 
As somebody based in Asia long-term I always questioned the sky high valuation and associated wages and purchasing power of Europeans. Couldn't figure out how it was so much higher when most of the goods were being made here but consumed there. Guess I was right. All the goods were being purchased with borrowed money!

With adjusted Euro/GBP things Europe will be in better shape, I think it was a natural and neccessary adjustment to reflect reality of situation.

I would advise people to see the bust as a good thing although it might be hard at first. It means businesses will be competitive and more job opportunities will appear eventually, sustainable jobs.


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## Protocol (8 Jun 2010)

The euro at 1.20 USD is well above its lowest point of 0.85 USD approx and above its starting value of USD 1.17 approx.

Not a disaster.


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## Duke of Marmalade (9 Jun 2010)

_ringledman_ where those stats selected by you or by the BBC? For they do appear selective.  The following stats, which I can't do links to, would I suggest show the UK in a much worse light:

Current Government Deficit
Balance of Payments
Debt ratio of the personal sector
State support for the banking sector

And as for the unemployment rate, perversely the relatively low rate for the UK is bad news for them.  At least we can hope that our fiscal imbalance is largely cyclical and will right itself when growth returns.  The UK has a larger fiscal deficit whilst having relatively full employment, how are they managing that?


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## Duke of Marmalade (9 Jun 2010)

ringledman said:


> *"the Euro will probably break up in the next 15 to 20 years” because currency unions do not survive and they haven’t in the past.*


There has never, never been a currency union like the Euro, so this comment is nonsense. There have been lots of currency agreements, Bretton Woods, EMU etc. but these have always been arrangements between separate currencies.

I agree with him on one thing, if Greece were allowed to sink the Euro would soar. So make no mistake, Germany will decide if and when it will ditch Greece. There is no way Germany will let the Euro collapse.


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## Pat Bateman (9 Jun 2010)

The Euro dipped below $0.90 and peaked above $1.50. 

Over the course of it's life it's average value has been just under $1.20. 

Right now it's just under $1.20.

In other words, no need to panic.


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## mainasia (13 Jun 2010)

Duke of Marmalade said:


> There has never, never been a currency union like the Euro, so this comment is nonsense. There have been lots of currency agreements, Bretton Woods, EMU etc. but these have always been arrangements between separate currencies.
> 
> I agree with him on one thing, if Greece were allowed to sink the Euro would soar. So make no mistake, Germany will decide if and when it will ditch Greece. There is no way Germany will let the Euro collapse.


 
Yes, this makes eminent sense. They will cleave off the rotten wood, doesn't mean the rest of the tree will not prosper.


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## Chocks away (13 Jun 2010)

pat bateman said:


> the euro dipped below $0.90 and peaked above $1.50.
> 
> Over the course of it's life it's average value has been just under $1.20.
> 
> ...


+1


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## ringledman (19 Jun 2010)

Duke of Marmalade said:


> There has never, never been a currency union like the Euro, so this comment is nonsense. There have been lots of currency agreements, Bretton Woods, EMU etc. but these have always been arrangements between separate currencies.
> 
> I agree with him on one thing, if Greece were allowed to sink the Euro would soar. So make no mistake, Germany will decide if and when it will ditch Greece. There is no way Germany will let the Euro collapse.


 

http://samvak.tripod.com/nm032.html



> The History of Previous Currency Unions
> By: Sam Vaknin, Ph.D.​
> 
> 
> ...


 

The Euro requires political integration to succeed or it will go the way as the previous currency and monetary unions. 


The question is - Is there the will in the people and individual governments of the EU to pass their tax raising and spending powers to Brussels in order to make the Euro succeed long term? 
Personally, I doubt it.

I think a lot of posters here merely look at the noble reasons for the Euro as good enough reason to sustain its existence. Yes the EU has been a huge success in preventing wars between its member states and in creating the libertarian free zone for the movement of people, goods, services and capital. 

Excellent policies. A collection of individual countries working together for the common good whilst maintaining their decision making powers on how to run their economies based upon the individual circumstances of each member of the EU. 

Unfortunately for a currency union to succeed it comes down to hard rational economic facts. The moral or noble reason for its existence are overriden by the cold reasoning that every member must act in the same manner, have the same economic conditions, raise taxes together, spend together. In essence take risk and reward together. 

The current Euro set up cannot accomodate this. For the Euro to succeed - Full political and economic integration will be required as the dollar experiences under the 'United' States of America. 

A federalist state is required for the Euro to succeed over the longer term. 

Too many posters here say the Euro will succeed simply based upon a hunch that things will be ok. Unfortunately without the integrated policies in place, stating that the Euro will survive simply because it brings the states together and because the leaders will not let it fail is not good enough to keep it in existence. 

What economic evidence is there to say the Euro can survive in its current form with each member state taking a seperate course on running their economies?

I am pro European, but appreciate that market forces eventually always win out against fundamentally weak systems. 

Will the Euro members and their citizens be willing to create a fundamentally strong 'federalist' state to ensure that the market forces act in favour of the Euro?

The market always wins out in the end. Fundamentals always win out eventually.


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## ringledman (20 Jun 2010)

Pat Bateman said:


> The Euro dipped below $0.90 and peaked above $1.50.
> 
> Over the course of it's life it's average value has been just under $1.20.
> 
> ...


 
In the grand scheme of things exchange rates between the dollar, euro and pound are becoming irrelevant. 

Each central bank is and will, try and devalue their currency to remain competitive. It is a race to the bottom. 

Likewise, each central bank must print and print to reduce the debt burden at the sake of higher future inflation.

It is becomng irrelevant to still compare one of the West's flawed currencies against another to measure either value or strength. 

They are all falling v precious metals and the cost of goods and basic staples. 

You need to compare a currency against a fixed currency of limited supply that cannot be created at will, of which there is really only one - gold. 

It is not a true measure of relative strength to measure a flawed asset v another flawed asset. A fixed datum is required. 

The next decade will be one of rising costs, currency depreciation or debasement. 

Gold, silver, platinum, palladium, or real 'Asian' currencies will be the marker to compare the euro, dollar or pound against in the future.

Comparing flawed currencies against each other this coming decade will only produce a relative (not absolute) comparison.


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## csirl (21 Jun 2010)

ringledman - you forget one important fact.

For most of history, there has been a single currency worldwide without political union. Precious metals like gold,silver etc. were, in effect, a currency from the stone age to the middle ages. The phenomena of individual countries having their own independent monetary systems controlled by politicians is a short lived recent fad. The future is one single world currency. The Euro is a step in this direction.


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## Chris (22 Jun 2010)

csirl said:


> ringledman - you forget one important fact.
> 
> For most of history, there has been a single currency worldwide without political union. Precious metals like gold,silver etc. were, in effect, a currency from the stone age to the middle ages. The phenomena of individual countries having their own independent monetary systems controlled by politicians is a short lived recent fad. The future is one single world currency. The Euro is a step in this direction.



I think you are ignoring some important facts from history. While gold was used for coinage and currency backing, governments and monarchies have been manipulating their currencies for centuries. It started with clipping or melting down of gold coins, and continued with the gradual abandonment of the gold standard in the 20th century. 

In addition to that, the first fiat currencies appeared in 11th century, and have repeatedly failed throughout history. So it is completely wrong to claim that it has been a short lived recent fad. What has always led to their failure is manipulation by the powers that be, through monetary inflation, the most deceiptful form of theft.

I would love to see a single world currency, but not one controlled by any central bank or government. Weights of gold are perfectly adequate, there is absolutely no need to invent new currencies. All fiat currencies are a step in the wrong direction.


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## ringledman (27 Jun 2010)

csirl said:


> ringledman - you forget one important fact.
> 
> For most of history, there has been a single currency worldwide without political union. Precious metals like gold,silver etc. were, in effect, a currency from the stone age to the middle ages. The phenomena of individual countries having their own independent monetary systems controlled by politicians is a short lived recent fad. The future is one single world currency. The Euro is a step in this direction.


 
You can't compare gold/silver to the euro! Don't even try!

One is of limited supply, hard to extract and representative of all the productive effort required in extracting it into this world.

The other is representative of a non-productive government entity that can manipulate its supply with the ease of pushing the printing press button.

One has sound fundamentals supporting it, the other have crooked fundamentals supporting it.

The world will over the next 10-30 years create a new global currency to replace the fundamentally flawed dollar but we certainly won't replace one flawed currency with another!

The only possible replacement global currencies are gold/silver or the Chinese Yuan.

Currencies with real 'productive' and 'saving' fundamentals behind them. Not currencies based upon flawed fundamentals of- 

- bloated government spending 
- debt
- unafunded public liabilities
- 'consumption based economies'
- Non political & economic unity

Get with the huge changes that are happening in the world - 

http://www.youtube.com/watch?v=loUUVhibkOQ


- Decline of Fiat Currencies
- Government Induced Spending is a scam
- Transfer of Wealth East


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