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German exit from euro ‘realistic prospect in 2011’
Weak members should stay in the euro - Germany should resurrect the Deutsche Mark, says analyst
First Greece fell, then Ireland. Now the cost of borrowing for the Portuguese government is rising - a sign that it, too, will soon require a bailout. The PIIGS (Italy and Spain are the other two) are falling like dominoes.
So far, much of the 'Dooomsday scenario' talk has revolved around the seemingly inevitable exit from the euro of these weaker members.
A return to the drachma or the punt, so the argument goes, would allow Greece and Ireland to devalue their currencies and make their debts more affordable.
But now a new, more fanciful, solution has been floated: an exit from the single currency by Germany and a few sensible friends, such as Austria and Finland, who would resurrect the mighty Deutsche Mark.
Germany's presence in the euro is a problem for the PIIGS, since the export powerhouse keeps the value of the single currency high, making it difficult for the likes of Greece and Ireland to escape their crises by increasing their own exports.
Without Germany, the euro would fall in value, giving a much-needed boost to the competitiveness of weaker members.
Graham Turner, an economic consultant at GFC Economics, says a German-led breakaway is a "realistic prospect for 2011".
He told the Guardian that he thinks the Netherlands, Austria and Finland would be suitable partners and that their exit would allow the remaining 12 members to devalue the euro and escape the sovereign debt crisis.
"It has to be a better option than the present straitjacket of a single currency," he says.
A major stumbling block is that the current level of the euro suits Germany very well - and its banks have piles of euro-denominated
investments: a devaluation would be a big hit for them.
But it's an idea that could gain traction in the coming months. The latest word is that if Portugal falls, there won't be enough money in the EU bailout kitty to help Spain if it follows suit. ·
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Remember all predictions that euro will not work and people will have to exchange products? For an Anglophile it is a shame to see the ever returning stupidity blind the English on this. Euro will be only stronger and will become within 10 years more important than the US dollar. But the pound... well, it is your problem.
I have a bet of a fine bottle of Scotch with a friend that the euro will implode in 2012 whilst he has pitched its demise for 2015. Every day it seems more likely that I will win.
Of course this is rather poor economics. If a country wishes to boost exports they can also reduce prices - this is the currency equivalent of devaluation. But this is too obvious for most political analysts who are not economists. The other possibility is 'quantitative easing' (QE) by the ECB - otherwise known as printing money and boosting inflation. Of course, manipulation of the money supply is mostly done electronic means and increase of credit now, so actual printing of notes is unnecessary, unlike Zimbabwe recently and Germany in the 1920s - that hyperinflation should be ingrained more deeply on the europsyche than it is. QE is also the equivalent of devaluation, but will affect weaker economies more as inflation takes off. One to watch people - the question is, what will the EU sacrifice along the way as they hang onto their super-symbol of the EU, the euro? The other symbols (the flag, the slogan 'United in diversity', Eurpoe Day, and the anthem 'Ode to Joy', without words! could all be jettisoned, but the euro is central to their master plan. The master plan of a new master race one might say.
Buying and selling things from around Europe without paying a commission to the needy bankers is good for business and good for the consumer. Nations have richer and poorer areas and manage on the same currency. Europe needs more clout to crack the problem or its value is going to take a nose dive.
So the Germans finally figured out that they actually are the suckers in the euro deal and they all are taking them for a ride