Quote:
Originally Posted by discreetgent
Seriously, the Euro's current problem was almost inevitable. When countries lose the ability to devalue their currency based on their own economic conditions bad things happen. OTOH the USD is not in great shape at the moment either, so the euro falling to .50 on the dollar is IMO a real stretch.
Single currency without integrated economies and common political leadership is a recipe for disaster. One of the intents behind the Euro was that it would move the EU towards a integrated economy and eventually to a much tighter political union as well; hasn't happened that way.
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That's exactly right.
You can't have an effective monetary union when there's such fiscal disharmony between member states. It will not work, and it
cannot work.
In the old days, a country like Greece would get into a fiscal bind, go through a couple of tough years, devalue the drachma, and start all over again. Nowadays, German taxpayers have had it with paying high taxes and working until age 68-70 so that they can bail out people in other eurozone states who retire 15 years earlier with lavish pensions and other benefits.
A couple of the smartest investors I know have been saying for a year or two that the euro is likely to "come apart." But here the term "come apart" does not exactly have a precise definition. It doesn't necessarily mean that the euro will crash to 0.50 USD or less. It's possible that the experiment could be ended with most or even all eurozone states exchanging their euros into their resurrected domestic currencies or other fiat currencies. Some analysts think that if this were to happen, the euro (now $1.31) would probably drop to approximate USD parity or a little less.
But having said all that, it's not exactly as though the U.S. dollar is a tower of strength! It's obviously a terribly flawed currency.
(Full disclosure: I
am short the euro.)
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