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Chart of The Day: The Currency Collapse After A Euro Breakup
By EconMatters
The Euro Zone debt crisis has certainly kept the credit rating agencies busy in the news headline. On Friday, 16 Dec. Moody's downgraded Belgium's credit rating by two notches to Aa3 with a negative outlook, citing concerns over soaring borrowing costs, economic growth as well as the health of Belgium's banking sector after the demise of Dexia.
Fitch Ratings also lowered France’s credit outlook and put Spain and Italy, alongside Ireland, Belgium, Slovenia and Cyprus, on downgrade review, citing Europe’s failure to find a “comprehensive solution” to the debt crisis. S&P already on 5 Dec. placed the ratings of 15 euro nations on review for possible downgrade, including six AAA rated countries Moody’s also noted on 12 Dec. that it will review the ratings of all euro countries in the first quarter of 2012.
All these downgrades and rating warnings are not only putting further pressure on the debt crisis now going on for 2+ year, but is also sharpening the picture of a possible breakup of the Euro Zone.
MarketWatch reported that the latest monthly survey of about 200 major institutional investors with about $600 billion under management.by Merrill Lynch/Bank of America Securities revealed that nearly half of all institutional money managers now fear a partial break-up of the euro zone. Investment houses like Merrill Lynch and Barclays Capital have in recent weeks issued various reports discussing that very scenario as “The euro zone financial crisis has entered a far more dangerous phase,” lamented analysts at Nomura.
The Telegraph published a graphic depiction of the effects on European exchange rates of a Euro break-up forecast by ING that sees an immediate fall in individual currencies in 2012. (See Charts Below).
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Chart Source: The Telegraph, 16 Dec. 2011 |
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Chart Source: The Telegraph, 16 Dec. 2011 |
From the Telegraph:
"ING predicts thatmost of the new currencies will not reach Euro exchange rates, except for Germany which would see its currency appreciate by four per cent.
The weakest nations inside the Eurozone would rapidly devalue against sterling by 2016, with a new Greek drachma worth at least 44 per cent less against sterling by 2016, the Portugese escudo worth 28 per cent less and the Spanish peseta worth nearly 24 per cent less.
.... In the Eurozone ING seesGDP output falls ranging from seven per cent in Germany to 13 per cent in Greece."
Their studies collated the relative worth of potential new currencies five years after a theoretical collapse of the Euro in 2011. ING's forecast for 2012 based on their assumption of a dollar to sterling rate of 1.42. For 2016 the chart shows the average of their forecasts, converted to ING's guess of a dollar to sterling rate of 1.5.
The Telegraph also cited that both ING and Nomura there would be enormous uncertainty after a Euro collapse, with currencies liable to overshoot and be subject to high volatility.
Our thought is that the highly indebted peripherals including the GIIPS would most likely benefit the most from having their own currencies to devalue out of debt, while making their goods and services more attractive to help with GDP growth.
However, Germany would end up with a much stronger currency. That means a double whammy for the Germans--losing the export advantage of the weaker Euro, but also the purchasing power of its neighboring countries that would not otherwise be able to afford German goods without the stronger Euro. There's a reason Chancellor Angela Merkel of Germany has rebuked Euro breakup talk with this pointed remark - "It’s never going to happen."
On the other hand, since Germany is footing a lot of the bills of the Euro Zone bailouts, as well as suffering from the contagion effect on its bond yield and sovereign credit rating, there could be a balance point of cost vs. benefit where it is better off to cut all losses. But that is a very remote tipping moment that would not take place for at least another 18 months. We see the emerging and increasing likely scenario is that the Euro would survive, but one or more of the Euro weaker sisters could end up leaving the currency union to mend their own fiscal houses.
Amid the high uncertainty, right now according toMarketWatch, money managers are holding a lot of cash — an average balance of 4.9% of their assets. It goes without saying European and British stocks are the less popular investment options. Some brave contrarian investors might bet the other way as some European stocks and banks such as Citigroup and Bank of America are trading at less than half and a third of their respective book values. But most iinvestors are heavily underweight bank stocks, Japanese stocks and low-yielding bonds are also out of favor.
Further Reading:
Euro Zone: Another Crisis, Another Backdoor Taxpayer Bailout?
Comparing Bureaucracy: No Wonder The Euro Zone Is In Crisis
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http://www.overlordsofchaos.com/
And for those who wabnt to know a bit about EUROPEAN FINANCIALS .. for a change there was a relatively sober article in TODAYS FT containing some very informative Economic Graphs regarding Europe
http://blogs.ft.com/gavyndavies/2011/12/18/the-weakening-of-the-euro-could-help-the-crisis/#axzz1gwTv1tvS
Here You can see the Current Account Balance of the EURO Area as well as the EUR exchange rate over time ( i do resent a bit that the Current account balance is depicted in NOMINAL VALUES ... whereas the exchange Rate is depicted as a RELATIVE VALUE ... it should ofc have been shown ALSO in NOMINAL VALUES .. This would much more clearly have documented that the EURO AREA POLICY attempting to avoid DEBASEMENT of its currency has been successful AND protected SAVINGS from THEFT by STEALTH ,, as is attemopted by the USA and UK .
The Article in line with this points out ..as now maintained by me many times .. That EUROPEAN DEBT is TO EUROPE ITSELF , which has considerable implications for HOW the situation can be solved and also demonstrates that EUROPE is NOT in the hands of Foreigners ( The US for ex isnt owed anything serious from EUROPE .. It is the OTHER WAY AROUND ! )
There was a INADEVERTEDLY FUNNY article also in todays FT ... by a German who wants to be Anglosaxon and who as steady columnist at FT has vaged a relentless war against the EURO .
: http://www.ft.com/intl/cms/s/0/a78d2354-273a-11e1-b7ec-00144feabdc0.html#axzz1gyTiEgqS
let me CITE this WURST'L who wants to be FISH N CHIPS ( or a Hamburger ) :
" THE EURO ACTS AS A MODERN DAY GOLD STANDARD " ...
ZEROHEDGE Reader ..... CONTEMPLATE THAT !
Yes Mr would be Hamburger ... that is preciesely what it acts as.. to the BENEFIT of all COMMON and HONEST PEOPLE .. also those of the UK... but to the ANGER ( and FEAR ) of the Anglosaxon Financial Sharks and Elites .. who ..as long as such a STANDARD is maintained .. NOT with IMPUNITY .. can DEBASE ..at will ... to cover up fraudulent practice and TOTALITARIAN mis government …
And that is also one of the REASONS ..behind the current RELENTLESS ANGLOSAXON ATTACK on the EURO
They cannot have something which is SOLID next to their own totally ELASTIC Currencies
They cannot have something which attempts to maintain VALUE
.. when their own AGENDA is to STEAL by STEALTH
So explain to me how the EU can have a currency that maintains value when the member countries are almost all broke? Who will pay the debts of the members if not the members themselves, because the members cannot pay their bills?
The Euro will go the way of all fiat currencies. The EU is at a point where the desire to fight the inflation they know they will create has to be put on the back burner because the current crisis is sovereign default.
The EU will most certainly sacrifice the currency to save the governmental power to borrow for if the sovereign defaults come those in power are swept away.
So it will be PRINT.
My question is this -- what makes the British pound so special? U.K. debt is astronomical, what do they actually produce in England?
Because the BoE is independent the UK engineered it's own qe therefore it doesn't look as bad at first glance. However, when you factor in the bank rescues and personal debt figures the UK is the sick man of Europe and it's deficit is circa ten percent..France were quite right to point the finger at the UK last week, it's a financial mess of biblical proportions.
Debt v GDP of the UK plc (as a whole entity) is circa 450%, surpassing Italy at circa 350% and Greece at circa 300%, only the basket case that is Japan has an overall worse debt v GDP than the UK.
As we all know ANY analyst or bank has an almost zero probability of correctly forecasting long-term currency moces in any "normal"market environment. So it makes all the sense in the world to attempt such forecasts for a chaotic environment. Sure.
US central banking policy and the free market theory
by Shan Saeed 19 December 2011true dat, the British propagana machine, but if the Euro breaks up the economies over here are already so intertwined there will be a killing to be made in arbitrage....hedjamoney
WHY THR FUK ISN'T ANYONE COVERING THIS STORY!!!!!!
http://divinecosmos.com/start-here/davids-blog/995-lawsuit-end-tyranny
This lawsuit was filed the other day and IT EXPLAINS EVERYTHING!!!!!! PLEASE READ AND SPREAD FAR AND WIDE.
THIS LAWSUIT PROVES THE EXISTENSE OF THE SECRET SOCITIES AT WORK TRYING TO STEAL THE WORLDS WEALTH AS WELL AS EXPLAINING EVERYTHING FROM WW1 all the way to 9/11 and beyond.
THIS LAWSUIT IS LEGIT AND HAS BEEN FILED IN THE SOUTHERN DISTRICT OF NEWYORK AGAINST THE UNITED NATIONS, SILVIO BERLUSCONI, AND MANY OTHER ELITES!!!!!!!! THIS STORY IS NOT FAKE!!!!!!!! IT CAN ALL BE VERIFIED THROUGH THE COURTS SYSTEM!!!! It talks about WHATS REALLY BEEN GOING ON FOR THE PAST 80 YEARS OR SO. PLEASE READ!!!!!!!
Is there anyone alive that would actually believe they could find justice in a court????
Deep breaths, Crooklyn. The notion that a lawsuit "proves" anything is extraordinarily naive. What can be "verified through the court system" is that someone paid a filing fee and handed a document to a court clerk. By your logic, when the defense files an answer, that will prove the complaint false.
The main FINANCIAL market is in THE CITY OF LONDON . THATS where more than 75 % of all those fraudulent financial deals have been made ,which have brought the World on its financial Knees . The British POUND was originally the world reserve currency until it went bancrupt . The main GOLD Market is also in London .. and GOLD contrary to what is said ..is also tightly connected with currencies.
The way of how currency pairs are presented ..is therefore HISTORICAL as far as I know.. And it doesnt matter what way Currency Pairs are presented .. as You can trade both ways.
But may be there IS a hidden Benefit in being the First currency to be presented in a Pair.. but I dont think so .
You see.. some time ..now long ago ..an American Foreign Minister .. when European nations COMPLAINED about having to recieve all this worthless Printed US Money .. said :
" Well .. if You dont continue financing US .. we will take YOU ..DOWN .. with us.... "
And That is what is going on ... RIGHT NOW .
But remember.. there is a PRICE .. to be PAID ..for Actions..
there will be NO FREE-RIDE for the US anymore ... after that and the US will wake up in a totally changed World
With MY knowledge of the "POPULARITY " of the US in all of the remaining Americas ( fully understandable .. after the RIP OFF forced on other American countries by the USfor many decades ) .. it is my prediction that the US .. will become VERY LONELY .. in the World .. to come !
Excuse me if I appear ignorant; but I was wondering why the European currencies are being measured in reference to the the Pound. I don't understand as the British economy has as much or more debt and worse economic fundamentals than most of the European Union nations. Can someone please assist an old codger and explain? Thanks.
It's because the charts are from an article in a British newspaper.
tictawk ... Absolutely correct ! .. And dont forget .. RISING INTERESTS are ARSENIC to the US ..and the UK
In EUROPE we are so FORTUNATE .. that OUR DEBTS .. are to OURSELVES and RISING interest payments may bancrupt some.. still THE MONEY ..stays within EUROPE !
That LUXURY is NOT PRESENT in the US ..or the UK
Anyone thinking that the wealthy EMU nations are going to walk away from their debts with a currency reset and gigantic haircuts while the rest of the world is stuck with their debt headaches is deluded. When this happens I suspect it will only be like the boy with his finger in the dike. In the end it will be a governmental and corporate total default by all nations.
I do not think though that consumers will be allowed out from under, debt repayment will be the tax that floats the ships of state in the post collapse world of destroyed economies. You might not be able to repay in the economies ahead, but the debt will likely be carried on your books till you can no matter how long it takes, late fees, penalties, interest, they will just be tacked on relentlessly till it is certain you can't ever again be free of debt.
It is always easy to junk Eurotrash trolls! Enjoy eating dogfood when whatever broke country you are from pineyard.
Euro Collapse spells serious depression for the States since the dollar will become so strong it will strangle exports...plus, who in the EU will want to buy high-priced American exports at that point?
I suggest the problems there be solved with more financial genius--and less greed-- then we have seen so far.
Given that the dollar is a DEBT based instrument, the next phase in the dollar rise will come from US Bonds declining in value as the world seeks liquidity. That means that MARKET interest rates will rise as credit availability shrinks. Cash will be king. Any attempt by bazooka Ben Bernanksta to monetize debt will be met with more selling. At the moment, money is rushing into bonds as a safe haven but not for long.
That's the fear...AND A VERY REAL ONE. Of course "you can always blabber on about how gold is the only place to be when the financial Apocalypse hits."
Deutschmarks are on their way!
Be happy if it's not Reichsmarks.
And that's why they make the POLITICAL decision to "stick with the euro." end of story...move along.
Not so sure about that. Germany can't just sit in the middle. It must decide to do one thing or the other but Merkel can't move because of a German public which will not allow either option. And even honesty (It's all in the best interests of Germany's export machine to bailout the people who buy our stuff in fairly-valied Euros) wouldn't play well in the rest of the world!!
I forward a simple question
WHY are ANGLOSAXON MEDIA so hellbent on portraying a EURO BREAK-DOWN ?
When they should be concerned about their OWN miserable situation ? Because EUROPE .. wil solve its OWN Situation .. be so sure ! One way ..or the other .. and the EURO will NOT dissapear !
A US which now needs to borrow 300 BILLION US DOLLAR a Month .. most of all available Capital in the World , just in order to stay afloat
BUT ..I can tell the reason .. clear and without hiding anything behind all kind of FAKE WORDS :
Is it because Anglosaxon ELITES have their back against the Financial Wall and like TOILET-RATS would sell even their Mother in order to survive themselves ?
But anglosaxon HOPES are WISHFULL THINKING ..ONLY. And anglosaxon sordid actions .. increasingly desperate in their nature - apart from destroying ANY possibility for future cooperation between the US and EUROPE - have a day of RECKONING COMING THEIR WAY !
There is NO PLACE ON EARTH which has the CAPITAL RESOURCES OF SIMILAR SIZE AS EUROPE combined .
The Swiss .. an HONEST COUNTRY who attempt not to steal from its own people or from people who have entrusted them their savings and surely knowledgeable about the value of Money have pegged their currency to the EURO
Lately RUSSIA has declared its unconditional support for the EURO .. and disclosed that Russia NOW holds 40 & of all its currency reserves in EURO . As far as I know their holdings of US DOLLAR have declined dramatically .. also recently.. and looking at the US .. I fully understand WHY ! ( But also this has been kept totally in silence by anglosaxon fraudulent media )
I do NOT think RUSSIA does so because of Europes BLUE EYES .. rather due to careful analysis .. WHERE RUSSIAS ( and EUROPES ) real interst and HISTORICAL as well as CULTURAL BONDS .. lie . But we .. in EUROPE ..WHO CAN THINK AND READ ... will remember that .. and work in a direction where we are not constantly BACK-STABBED and where our natural intersts lie ..EAST ... definitely NOT WEST .. where we contrary to what we were made believe realize by now A DECEITFUL UNRELIABLE AND GREEDY COUNTRY which has EXPLOITED the WORLD since 2nd WORLD WAR .. RESIDES .. showing its treacherous hand ..for all to see ... every day ( for people who who have more than 1 gram brain tissue .. that is )
And Contrary to this anglosaxon Glee over a SMALL decline in the EUR/USD exchange rate .. the common american ( if he knew anything about economics ) should PANIC .. at such development .. as this is VERY WELLCOME in EUROPE , which ows its debts ..to itself.. and with a bit lower exchange rate can sell even MORE abroad .. and add to the prevailing POSITIVE TRADING BALANCE and CURRENCY ACCOUNT BALANCE .. which overall .. and except MINOR deficits during 2004 - 2010 ... has been a hallmark of EUROPE for the last 25 years .. . You see. EUROPE ..contrary to the US .. has MADE the Money .. they have spent .. and investments and debt have been financed WITHIN EUROPE ITSELF
I say .. paraphrasing CATO .. whom most americans are so ignorant .. they dont even KNOW who is -
Let EUROPE START SELLING ALL OF OUR US TREASURIES .. AND DEMAND THOSE 2.3 TRILLION US DOLLARS AMERICAN BANKS OWE EUROPEAN BANKS ... NET ... AS WELL AS THOSE 800 NILLION US DOLLAR UK BANKS OWE TO EUROPE ..ALSO NET ... BACK . Lets then start trading our commodities outside the DOLLAR - SPHERE similar to the current TREND amongs BRIC Nations . Because EVERYONE with just a little broader horizon than the nosetip realizes it is VITAL to get rid of as many US Dollar demoninated assets .. one possibly can get away with
Utilizing Numbers in a recent Goldmand Sachs Report THAT will set the USA GNP BACK at leaast 10 % ... probaly closer to 20 % ... is MY ESTIMATE.
After THAT there will only be one thing left for the US to do .. and that is ..finally to ADMIT BANCRUPCY
Hopefully EUROPE has succeeeded in OFLOADING as many US ASSETS as possible .. before THAT !
"The Swiss .. an HONEST COUNTRY"
really -- two words: NAZI gold.
Heh--two more: UBS bank.
WHY are ANGLOSAXON MEDIA so hellbent on portraying a EURO BREAK-DOWN ?
Are they? You read about the death spiral a lot at financially oriented websites like ZH but see almost NOTHING on network TV about this. I cannot remember the last time I heard the word euro mentioned on TV except for Bloomberg and MSNBS. I have not seen it mentioned in the newspaper either. Magazines seem unconcerened by it. I see more stories at der Spiegel than at Newsweek. Strikes me as a rant looking for a home.
Hundreds of years ago, people thought the black plague was caused by demons -- just because you don't see something, doesn't make it unreal.
Well Pineyard, all those CAPSLOCK comments remind me a little of Nuremburg (the rallies, not the trials), but anyway, if you go to your front door and pick up all the mail on the doormat you will notice that every member of you cozy family (including its head) has been spending a little too much on their credit cards, and its time to start paying. If you don't like the loansharks that you've used in the past to help you make it through til the end of the month then fine, go look somewhere else. The further you go into the gutter looking for the help you need though, don't be surprised if the guys 'willing to help you out' turn out not to be the generous strangers you believe them to be. Now let me see, Dresden or Stalingrad, which way shall we turn??
Pineyard's hysterical tone derives from his fear that Europe really is screwed. Pineyard apparently missed the fact that Vlad Putin has BLUE EYES.
This sounds like Burger King's ad for "the Whopper" back in the day. What was it? "you can have it your way" or something thereabouts. "hold the pickles, hold the lettuce...
The Euro and the USD are just two players in the same broke-dick debt-based fiat musical chair ponzi and both will ultimately fail. Who gives a shit what any particular media whore has to say about it on any given day?
If her name's "Sarah Eisen" I care. I hear she's got the letters "KGB" tattooed to her cute Ohio butt.
Sorry Pineyard, hate to rain on yr parade, but yr basic premise is wrong. The EU has run through its capital which is why it is in such dire straits.
Big part of EU problem is Bagehot's 'Foreign Drain' which is the half-trillion euros per year sent overseas so as to 'purchase' fuel that it burns up for nothing. Year after year after year after year ...
Unlike America which is designed and built around $20/barrel fuel, Europe is designed and built around $25/barrel fuel. The difference between $25 and what the barrel costs has been borrowed along with trillions more for other worthless junk like 'USA-style' automobile suburbs in places like Spain and Ireland.
The euro was first and last an energy hedge, intended to act as a hard European alternative to the 'soft' dollar, which the European nations had to buy on the F/X markets. How galling!
Because the dollar is a hard currency and getting harder, the euro has failed. Nothing including kings, horses, men and superglue can put the euro back together. All that matters is the endgame.
Meanwhile, Mr Analyst seems to believe that Germany can default and have its currency increase in value. Let's just watch over-indebted Germany without its export (car) markets try to pay its euro-denominated debts @ par. I can flap my arms and fly to Philadelphia, first.
The Eurozone is a ponzi scheme, UK was first to exit and did so, intact. There are only spaces for a few more to exit the Eurozone intact. Who's next? Finland? Swiss? Deutschland? If Germany goes anything other than last -- as ultimate bagholder -- it will be a German default. The mark will be worthless.
Steve in VA: Agee with your comments. If you come to Philadelphia by flapping your arms you'll be a hit. I think, though, that Germany has two choices, to go first or last. If it allows the liabilities to pile up further through Target 2 unfunded ESCB balances, EIB loan extensions etc. then the price to leave will become so high it is forced to only go last, in effect never to go at all.
I am really interested in how the Dollar Index would be redefined after a Euro collapse. The Euro makes up 57% of the index comparison right now. Would all the new currencies be included in the Dollar index or only some? US Treasuries sales and yields indicate a flight into the Dollar as a current safe haven. After a Euro collapse I would expect much more attention being paid to the US Economic situation and a possible panic flight from US Treasuries.
But to WHERE???
;)
Yet the TIC out last week showed only four billion in net sales. Though this was the premise for my saying that at least temporarily the US would be the beneficiary of a collapse in the eurozone.
Highlights
Inflow of investment income into the US slowed sharply in October, to a net $4.8 billion vs a revised net inflow of $68.3 billion in September and an inflow of $54.0 billion in August. October's slowing is centered in foreign purchases of US Treasuries with foreign purchases of corporate bonds showing a net contraction. On the positive side, net purchases of equities show a small gain after two months of outflow. US investors were small net sellers of foreign long-term securities in October.
When adding in short-term securities, October shows a total net outflow of $48.8 billion vs two prior months of strong inflows and vs an even larger net outflow in July of $58.6 billion. Though foreigners showed little demand for US securities in October, net flows for November and December are likely to get a strong boost from foreign demand for both long and short term US Treasuries, the result of troubles in the European debt market and what is generally rising demand for dollar-denominated assets.
VVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVVV
This also means China is no longer funding the trade deficit which is well over half a trillion per year. That will have a double whammy effect as wealth leaves the nation to pay for imports and at the same time forces the next round of QE on the Fed to take up the federal deficit slack, it will be catastrophically inflationary even as there is less money on the street for us to use for consumption. Whether this Chinese boycott of our treasury auctions is a temporary condition to send a shot across the bow of DC or a permanent condition because they are now feeling the beginning of their hard landing I don't know, but it does mean we cannot export inflation at a very delicate moment.
Agreed. $39 Silver is going to look pretty good next thansgiving.
"$139" Fixed it for ya!
Good point about the dollar index. However, they are all fiat...printed from thin air.
A sober look shows all countries will continue to debase their currencies to "export out of recession." Larry Summers said that was teh USA goal, however, in reality, all countries (most recently the honorable Swiss Franc) yield to this currency devaulation.
Long term shows commodities will continue to rise after this spell of deflation I suspect. Classic...history repeats itself every time.
Chinese wet dream.
Doesn't each European State have the Resolution Authority to take control of a troubled credit institution within its borders with the aim of preserving the continuity of financial services, ensuring financial stability and protecting depositors? Couldn't they keep most of the same employees and replace the execs by appointing a Commisioner from the State? Wouldn't this include imposing bondholder hair cuts, voiding CDS contracts and wiping out shareholders? Doesn't the ECB have the authority to recapitalize these State Owned Transitional Credit Institutions at will? Would Dec 24 - Jan 2 be enough time for the takeover?
1. Some states default
2. Troubled credit institutions (most) are nationalized to preserve continuity
3. ECB recapitalizes nationalized banks by popular demand
4. Banks become utilities, politicians get re-elected
http://www.ecb.int/ecb/legal/pdf/en_con_2011_72_f_sign.pdf
Too big to bail. Goodbye Switzerland. Don't worry...we'll borrow your gold in the interim and say...in a thousand years...when you're an actual economy...we'll lend it back to you.