What Fate Awaits the Euro?

Editor's Note: This article is Minyanville Professor Fil Zucchi's response to a letter he received, followed by a response from Professor Satyajit Das.


Gian Marco writes:
 

Ciao, Fil, from the Alps, where I'm spending a week with the family in the snow, for a change. Let me express the following thoughts:

1. Minyanville has always been very objective, in almost every matter of discussion, but not, from my humble point of view, on the euro break-up discussion idea: Please give voice to either a German (or Dutch) euro-skeptic to validate your view of a no-euro-break-up-any-time-soon supporter in order to remain fair and respect the two sides of the argument.

2. Have you noticed that any euro-break-up-is-inevitable guy you can think of is Anglo-Saxon, Swedish, Danish or Swiss? That is, they don't live in a euro member state and, if they're lucky, they've seen a euro banknote a few times in their lives?

3. Have you seen that French officials today have released very positive statements about a weak euro being good for exporters?

4. Most interesting, have you spotted how Taleb's comments in Moscow have prompted a very peculiar market reaction (gold down 5%, US Treasury yields down along the curve, etc.) that make the guy look like a very bad market timer at best (versus the Market Timer in Chief)? Or were his comments about the implications of Larry going to Davos, Ben being back at the helm of the Fed, and US treasuries being a short for any human on the planet too candid not to spur a reaction from the HAND?

I'm sure we'll hear more interesting and unbiased opinions on Minyanville about these matters soon.

Ciao Gian Marco,

I knew I was going get an email from you after today's article. I know we disagree on the euro issue, and believe me, I have that argument with my father every day. But that's just the way I see it. There's no hidden agenda in my opinion on the subject. As I mentioned to you in our prior email contacts, I think in different ways the same outcome awaits just about all currencies. The inescapable problem for every country/currency is that the amount of total public and private debt in the world has grown to be overwhelming, and there's a growing realization that the "IOU" that currencies represent, are no longer good for it. It just so happens that the weaker EU countries are exposing the problem more acutely, while the US, for example, hides behind the mercantilist weapon of currency debasement to fight off the weight of its own debt.

There's nothing wrong with the euro as a common currency, and its convenience and efficiency is undeniable. But there are countries in the EU that simply cannot survive in its current structure, and either the countries or the currency must go. Perhaps the next step will be a widening of the Maastricht bands to accommodate larger deficits. It will maintain EU/euro unity but it will open the door to inflation -- something that ultimately won't be accepted by Germany and France. To sum it up, the problem isn't the euro; the problem is the abuse of the fiat currency system. The euro, the US credit crisis, etc. are just the symptoms of decades of such abuse. Keep in touch.

Saluti,
Filippo Zucchi

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