Friday, May 11, 2012

Krasting "Unscrambles the Euro Eggs"

With Greece openly thinking of exiting the euro, and the Eurozone actively considering Athen's ejection, I found the following analysis of a complete return to a euroless Europe interesting.  See Bruce's site for the gory details.  "Germany will no longer support Greece, neither will the IMF. If the Euro were to be broken back into its original pieces, the old legacy currencies would trade around the Deutsche Mark (DM). It is a very safe bet that if there was a free float of the currencies, the DM would increase in value versus all of the other EU members. It’s an equally safe bet that the USD/DM of ~1.67 that was posted on 12/31/98 (last day of the DM) is going to also be much weaker (DM strength). If the DM is going to make a comeback it will create a very nice new reserve currency. Money will migrate from both Switzerland and Japan to a different “safe” place. It will end up in Frankfurt. The issue is how long it will it take and how violent the markets will be. On that score, I would estimate that it would take at least a year for these adjustments to take effect, the process of making these adjustments will be very violent indeed. One thing is clear to me, Germany is going to take the brunt of the adjustments that must follow. The Germans are going to get hit from all sides. Its currency will rise against all the EU countries, it will rise against the Dollar and the Yen. This reality is the reason that Germany has done what they have to avoid a breakup of the Euro. I don't think they can avoid the consequences much longer. Germany is now stuck between a rock and a hard place." -