The European Union is a financial sinking ship. With water pouring in, the boat is starting to tip and it is the south that is mostly going under. Greece, Spain and Portugal are already starting to resemble third world countries. Well, Portugal always did, but now I hear even Italy might be going the same way. Germany, France and the Scandinavian countries are desperately trying to bail out the south who appear to be too busy having siestas and living la dolce vita to care that much.
It seems clear that the break up of the Eurozone is the only economic solution to this endemic instability. But MEPs seem to be in denial about this, spouting rhetoric about how ‘everything’s fine’, they do not want to face the politically unpalatable consequences of a failed Euro. Indeed, the European Treaty makes no allowances for countries leaving the Eurozone anyway. This was deliberate. When the European Union was put together, they wanted member countries to realize that this was for life. Like the mafia. No one leaves alive.
But the economic forces at work will transcend political treaties which will not be worth the paper they’re printed on when shit hits the fan. Countries will start to leave the Eurozone soon. The Euro may break up as a currency or new currencies will be invented. And the scary thing for investors will be that this will happen suddenly and without warning. After all, why would countries risk their economies by announcing plans to reinvent their currency to the market?
No, these plans will only see the light of day when the country drops out of the Euro. The most likely scenario is the leaving countries will create a new currency and buy out its government debt by having its own central bank print more money. The new currency will immediate fall below the conversation rate leading to an increase in exports and this will ultimately stabilize countries leaving monetary union. Countries will be able to quickly lower their prices compared to the rest of European Union.
It is a tricky game though. If wages and prices rose in order to compensate for a reduced currency increased interest rates would offset any advantages gained by increased exports. However, if these countries could keep their prices low amid the turmoil their net exports could see them through the crisis towards stability.
This is their escape plan. The lifeboats are being readied. The only question is what are the remaining countries willing to sacrifice to keep the Euro afloat after the inevitable desertion?