Skip to comments.The Disastrous Consequences of a Euro Crash
Posted on 06/25/2012 11:56:28 PM PDT by bruinbirdman
As the debt crisis worsens in Spain and Italy, financial experts are warning of the catastrophic consequences of a crash of the euro: the destruction of trillions in assets and record high unemployment levels, even in Germany. By SPIEGEL Staff
Collapse of Currency a 'Very Likely Scenario'
Investment experts at Deutsche Bank now feel that a collapse of the common currency is "a very likely scenario." German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again. And in Italy, former Prime Minister Silvio Berlusconi is thinking of running a new election campaign, possibly this year, on a return-to-the-lira platform.
Nothing seems impossible anymore, not even a scenario in which all members of the currency zone dust off their old coins and bills -- bidding farewell to the euro, and instead welcoming back the guilder, deutsche mark and drachma.
It would be a dream for nationalist politicians, and a nightmare for the economy. Everything that has grown together in two decades of euro history would have to be painstakingly torn apart. Millions of contracts, business relationships and partnerships would have to be reassessed, while thousands of companies would need protection from bankruptcy. All of Europe would plunge into a deep recession. Governments, which would be forced to borrow additional billions to meet their needs, would face the choice between two unattractive options: either to drastically increase taxes or to impose significant financial burdens on their citizens in the form of higher inflation.
A horrific scenario would become a reality, a prospect so frightening that it ought to convince every European leader to seek a consensus as quickly as possible. But there can be no talk of consensus today. On the contrary, as the economic crisis
(Excerpt) Read more at spiegel.de ...
The fallout to the U.S. would be minimal.
The one world gubmint types would be crushed.
Collapse of Currency a ‘Very Likely Scenario’
Investment experts at Deutsche Bank now feel that a collapse of the common currency is “a very likely scenario.”
Well, no kidding. That’s been obvious for a long time.
really? Hard to tell, isn’t it?
Don’t you believe it. I don’t think anyone can say definitively what will happen if (when) the Euro tanks - after all this kind of situation has never arisen before - but the world’s economies are so closely intertwined these days anything is possible. Europe is a major US trading partner. What happens to all the US companies that are creditors to their European counterparts when said companies can’t pay the debts they owe? It might be the final straw that breaks a lot of US companies, particularly financial institutions.
It is trivial.
It would depend on what the Fed does.
No. It is far from trivial.
United States’ banks provided the collateral for $700Trillion in European debt. We’re Europe’s backstop.
The United States government is bankrupt. There is no one to backstop us.
What part of economic collapse don’t you understand?
The EU is in trouble. The U.S. is not. The EU crisis is over-hyped here.
We did 268 billion in exports to the EU in 2011, so they are a critical trade partner as we try to grow out of our own economic doldrums.. quoting the EU trade commission, “The EU and the US economies account together for about half the entire world GDP and for nearly a third of world trade flows.”
Just think of all the jobs that will be created! (I'm only being partially sarcastic). In all honesty, many jobs that were made redundant when a single currency was established will now have to be recreated.
I, for one, am looking forward to the demise of the Euro.
Having a good old belly laugh from the grave.
(He died in 2006).
Speaking in 1998, just before the launch of the euro in January of the following year, monetary economist Milton Friedman said he was "not optimistic" about the new currency's prospects. "Suppose things go badly, and Italy is in trouble," he observed with eerie prescience.
I remember somewhere reading that he thought it would go for about 15-20 years or so, but cannot remember where I saw that figure quoted.
Looks like he was spot on.
Take THAT you NeoKeynsian one-world Fabian Socialist hack economists!
Notice that cutting Government spending is NEVER an option.
Robert W. Welch Jr. was right.
Yea. Sure. Keep lying to yourself.
Oh it won’t be the Euro that brings down the Dollar.
The dollar may lose reserve currency status and massively devalue, or it may just massively devalue as the bills come due.
Always the same. When it looked like the British pound would be forced out of the ERM (forerunner of the euro) all the pundits talked about the impending disaster. In reality Britain freeing the pound was the start of a long period of fiscal and economical health.
Same in Sweden; the politicians were so scared of leaving the fixed exchange rate that they instead hiked the inter-bank lending rate to 500% (!!). It didn’t work and ever since 1991 we’ve had a floating exchange rate and things have gone really well.
And look at Iceland. They couldn’t do what they did, everyone who was anything in international politics or economics said, but see it worked really well. The people (who had to defend their liberty twice in referendums) knew better than their politicians.
In short: Admit that the euro experiment was a major mistake, break it up into national currencies, and soon after the initial turmoil, things will settle and times will improve - until our politicians come up with another wonderful idea.....
Let me remind you that our President is Barack Obama. We can all be assured he will handle this crisis with deft and aplomb. Everything is under control. No need to worry. Hope and change are on the way.
LOL! Come on, admit it...you fell for the “Y2K” hype, too.
Redoing business contracts would take minutes - maybe hours. People do business across currencies all the time. That's not the problem...
“The one world gubmint types would be crushed.”
I don’t think it’s going to happen. I think it’s far more likely that the people of Europe will wake up on a Sunday (or Monday) morning and find that their elites have simply merged all of the ‘countries’ into a superstate (i.e., their dream for many decades). People will still be allowed to vote, but, of course, that will wait until the kinks are worked out in the unification.
As much as I’d LOVE to see the Euro break up, I know the mentality of those on the top, and like President Obama, they’re looking at train wreck as the best opportunity they’ll ever have to carry out their plan.
“The EU is in trouble. The U.S. is not. The EU crisis is over-hyped here.”
If it were the 90s and we had Clinton’s balanced budgets, I’d agree. If it were the 2000’s and we had Bush’s still-manageable deficits, I might agree.
But we’re on train-wreck path ourselves...it’s just that Europe is a bit ahead of us.
(p.s., there’s a reason I have 5 years worth of toilet paper, and just about everything else, in my house)
The only ‘nightmare” would occur for the Banksters....for everybody else...a very good thing.
It would mean a strong dollar, cheap gas....a mixed bag somewhat as the higher dollar would decrease US exports....force tax cuts here at home to drive the domestic economy
“Redoing business contracts would take minutes - maybe hours. People do business across currencies all the time. That’s not the problem...”
I think you’re getting to the rut of this (a little Jocelyn Elders lingo there). This may be simply prepping the public in those countries for the political union they want to impose by fiat (a little Italian lingo there). If the people are scared enough that the alternative is pure hell, they may not bitch too much when they find out their governments in Rome and Paris are now reduced to administrative functions, while Brussels calls all of the shots.
I suppose this was all “ unexpected” amongst the worlds over educated elite?
Afterall that’s what they keep telling us here at home!!!!!!
No sovereign debt exposure here?
Has anyone else noticed the flood of money into our T-bonds. Crap, I noticed that the 30 year rates was down to 2.65% yesterday. I think a collapsed EURO has already been factored in.
I think our exposure will be when the Chicoms get fed up, and put the plug on us.
Because we have five years worth of economic crap ahead of us?
All we have to do to prevent that is keep buying their crap forever to infinity and beyond.
I’m not an economist, but I don’t see where all the doom and gloom predictions are coming from?
Right now, Europe is in trouble because the single currency is forcing the more responsible (less socialist) states to prop up the irresponsible (more socialist) states. Won’t getting out of the Euro help to put an end to that? Let Greece tank; they’ll eventually pull out of their economic troubles, and if they want to head into socialism again, it’s their problem. There’s no need to drag the rest of Europe down with them.
I also don’t recall any major crisis when all those countries dropped their national currencies and went to the Euro; if changing currencies is supposed to precipitate a crisis, why didn’t one happen then?
Klintoon never balanced the budget, did lay the foundation for the housing bubble that collapsed in 2008, and perjury isn't just about sex.
The collapse of the Euro isnt going to help though.
Going to a common currency opens new markets. Producers in one country get new consumers in another. When they break up the Greek currency will plummet. No Greeks will buy anything from Germany anymore, so Germany will take a hit. More countries exiting will only make that worse.
The chances of anyone responsible admitting that are minimal. Economists, like politicians, dont like to be proven wrong.
Well, let’s hope you are right.
But this is the down side of high intelligence: convincing fools of their folly is often impossible, and sometimes the best one can do is just get out of their way--if one can.
The real wonder--considering the vast number of fools out there and how easily they are manipulated by scoundrels--is that the world is not in worst shape than it is.
I think Brussels calls the shots now. I have a book from a French class I took in the 90s, Euroscopie. One of the articles in the book was titled, "Bruxelles, tu nous étouffe!" ("Brussels, you are smothering us!") It discussed how regulations from Brussels were running over regulations from member states, and in the process, interfering with traditions. One example used was a carrot jam; the regulators in Brussels deemed that a jam can only be made with fruit, and since carrots are not fruit, the product could not legally be called "jam".
a horrific scenario would become a reality, a prospect so frightening that it ought to convince every European leader to seek a consensus as quickly as possible
The EU will eventually break apart anyway. It can do so at the price of a bad recession or a civil war. The former is cheap in comparison to the latter.
“No Greeks will buy anything from Germany anymore....”
I doubt their buying very much presently as it is.
All Greece has is a tourist industry. On the Drachma, that industry will be on fire!!!!,
Thanks for the explanation, but I still don't get it. I thought exports/imports were covered by trade agreements; I don't see the relevance to currency. I go to the store and see produce from all over the world--I'm pretty sure that none of those countries use American dollars.
Britain is looking pretty smart for not adopting the Euro. As usual, Margaret Thatcher was right.
The reason Americans can buy from around the world is our currency is overvalued being a reserve currency and being a currency for people like Greek citizens who want to hold onto some purchasing power. Our situation is temporary but could last another decade.
Waiting for the Euro to crash so I can buy a new BMW 335i for $10,000 US.
You might want to set your sights on an Italian car instead (since their currency will crash while the German Mark soars).
Agreed. Any “consensus” will necessarily consist of 2 things: Austerity programs and bailouts.
Those in the countries receiving bailouts will be forced to accept austerity (less free stuff from government), and will fight tooth and nail to keep their hammock lifestyles, at the ballot box and in the streets. National governments agreeing to austerity will be thrown out. The agreements will fail.
In countries not being bailed out, the moral hazard kicks in: would you rather be doing the bailing, paying for the socialist profligacy of your neighbors, or getting the bailouts while someone else does the work.
These things will cause the contagion that threatens to wipe out the euro, to be saved by instituting “political union”. Remember the real criminals are those who brought you this Frankenstein’s monster in the first place, but they will mostly be the same ones offering the solutions.
And this is how it works, promise something impossible, thereby precipitating a crisis. Use the crisis to implement what you really wanted in the first place.
“Never let a good crisis go to waste.”
“Because we have five years worth of economic crap ahead of us? “
Actually prepping was the best investment that I’ve ever made with my money (other than shorting financials in 2006 when it was obvious that a crash was coming). The prices of what I’ve stored have gone up 5% to 10% a year since I started in 2009 (once I knew that Obama actually wanted the country to crash).
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