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Nomura Presents The Fair-Value Of European Currencies In A Euro Breakup Scenario

Tyler Durden's picture


As investors proceed happily through the forest that is this week's potentially epic fail, Nomura asks the question on every European is asking - What's in my wallet? Investors holding EUR-denominated assets and obligations face potential redenomination of contracts into new currencies. Based on the current misalignment of the real exchange rate and future inflation risk estimates, the fixed income group sees very material depreciation risks in most of the periphery and one surprise but critically the research enables risk-reward trade-offs on intra-European trades. This potential 'fungibility' issue is exactly what we described last week as a potential driver of stress and Nomura's work provides a framework for quantifying that relative stress. That said, Nomura adds the usual disclaimer: "For full disclosure, we are not regarding the break-up scenario as our central case." But... there is always a But. "But it has become a real risk over the last few months, and a possibility for which investors should now plan."

Belgium, while not entirely surprising to us, faces a dramatic devaluation in a break-up scenario buit it becomes very clear just how concerned depositors and obligation-holders must be in Greece, Portigal, and Spain at a minimum. Even the other (ex Germany) AAA nations will see devaluations.

As for how Nomura proceeds with the valuation of standalone currencies, report author Jens Nordvig gives the following justification:

Since the uncertainties in the valuation exercise are large, we want to focus on a relatively simple and transparent framework. And we want to stress up-front that these estimates are unlikely to be particularly precise. They are intended to give a sense of potential magnitudes involved over a 5-year forward time frame, after which we believe temporary transition effects should be smaller. Our framework for valuing potential new national eurozone countries concentrates on two main medium-term effects:


1. Current real exchange rate misalignments: The eurozone currency union has, by definition, disabled the normal FX adjustments, which would happen under a flexible exchange rate regime. Moreover, given rigidities in nominal prices, especially in terms of downward adjustments of wages, real exchange rates are now potentially significantly misaligned from their „equilibrium? levels in some countries. The first component in our valuation framework is an estimate of the current real exchange rate misalignment.


2. Future inflation risk: A break-up of the eurozone would mean that individual eurozone countries would return to independent monetary policies. The national central banks would have differing inflation fighting credibility and face varying degrees of pressure to provide liquidity for banks and public institutions. Those differences would leave potential for significant divergence in inflation trends. The second component in our valuation framework is the projected future inflation risk.


A eurozone break-up will create additional short-term risks and require new risk premia for investors. These extraordinary risk premia will vary by country depending on factors such as market volatility, liquidity conditions, as well as issues relating to capital controls, including possible taxes on capital flows. Since our analysis is focussed on equilibrium considerations over a 5-year period, we will not focus directly on these more temporary effects, although we recognize that they could be crucial in the short-term.

And as for the quantification of future inflation risk:

We focus on four parameters which measure future inflation risk:


1. Sovereign default risk: Financial stability and conduct of sound monetary policy is closely linked to fiscal stability. From this perspective, sovereign default risk will be a key parameter influencing future inflation risk. This is especially the case since sovereign default is likely to trigger a domestic banking crisis, in which case central bank action may be partially dictated by the liquidity needs of banks. We look at the implied default probability in 5yr CDS to quantify sovereign default risk per country.


2. Inflation pass through: The degree to which the inflation process is vulnerable to shocks depends on open-ness, indexation, unionization, terms-of-trade volatility and other factors. The exchange rate pass-through is a summary measure, which captures a number of these effects. Past inflation volatility is another proxy for susceptibility to shocks, such as energy price shocks. We use estimates from academic studies of the exchange rate pass-through coefficient per country and we combine this with the observed volatility of CPI inflation in the past at the country level.


3. Capital flow vulnerability: Large current account deficits combined with a weak structure of capital flows can combine to leave a vulnerable capital flow picture. A vulnerable balance of payment situation may imply higher risk of capital flight, with implications for money demand and inflation dynamics. We look at the basic balance, defined as the current account balance plus net foreign direct investment flows, as a simple metric of capital flow vulnerability by country


4. Past inflation track record. Inflation expectations can have long memory, and past experience may matter when new monetary policy frameworks are put in operation. The inflation track-record before Euro entry may therefore be important. We look at inflation performance in the pre-Euro period (1980s and 1990s) by country.

As for the other countries:

Our study has focused on the first 11 eurozone member countries, although the analysis excludes Luxemburg, which is likely to re-peg its currency to another „stable? European country, given its very small size. We have also excluded the five newcomers to the eurozone: Slovenia, Slovakia, Cyprus, Malta, and Estonia from this initial study. The reason is two-fold. First, these countries are all relatively small in terms of the size of their economies and their financial markets. Second, the methodology we have been using is not directly suitable for the countries which joined the eurozone later on. We may do customized analysis for those countries at a later date.

The report's conclusion:

Our estimates suggest significant depreciation risk for a number of eurozone countries in a redenomination scenario. We estimate that this risk is in the region 60% for Greece, around 50% for Portugal, and 25-35% for a group of countries including Ireland, Italy, Belgium and Spain. At the same time, our estimates confirm the common perception that a new German currency will fare better. In fact, our point estimates point to a slight appreciation potential, although it is marginal and economically not meaningful.


Our estimates focus on a medium-term equilibrium concept, and we recognize that short-term dynamics could see significant undershooting relative to our estimates. This is especially the case, when a break-up scenario would involve capital controls, political instability, and a collapse in existing banking systems.


The estimates should be seen as an initial attempt to gauge the magnitude of possible medium-term equilibrium effects. But more detailed analysis of country specific parameters will clearly be needed to achieve more precise projections.


Regardless of the uncertainties involved, the estimates serve to highlight the significant depreciation risk associated with currency redenomination in a number of countries. And since the risk of a eurozone break-up is no longer negligible, investors will have to add „redenomination? risk to the list of standard risk factors they have to consider in their portfolios.


Our analysis of the legal aspects of the redenomination risk has shown that redenomination risk is high for local law obligations in most break-up scenarios and significant also for selected foreign law obligations in certain break-up scenarios.


The combination of high redenomination risk and the potential for significant depreciations in a break-up scenario should impact risk premia on certain assets already at the current time. More generally, this new layer of uncertainty is likely to impact investor sentiment towards eurozone assets and the Euro negatively in coming months and quarters.


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Mon, 12/05/2011 - 13:46 | 1947154 Mongo
Mongo's picture

Bullish on bananas!

Mon, 12/05/2011 - 13:49 | 1947175 Oh regional Indian
Oh regional Indian's picture

Looks like the Nordicks will rule the EU.

Imagine what this would do to the FX world? Incomprehensible volatility. Can't happen. Sabers have been drawn for far lesser reasons.

Archduke Ferdie moment might be getting closer.



Mon, 12/05/2011 - 14:00 | 1947218 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

All is well on this fair evening

As the white waves crash ashore

The night is quiet, there are no worries

Nor any Nordic boats

-Irish poem

Mon, 12/05/2011 - 14:05 | 1947236 whstlblwr
whstlblwr's picture

If you are not happy with immoral hazard and psychopaths taking over America, make sure to register Republican to vote in the primary in January from these states. If you know anyone who lives in these states talk to them of Ron Paul.

Don’t speak of end the Fed because most don’t understand meaning of this, but that inflation in gas and food are caused by money printing that he will work to stop.

January 3, 2012 Iowa (caucus)

January 10, 2012 New Hampshire (primary)

January 21, 2012 South Carolina (primary)

January 31, 2012 Florida (primary)

Mon, 12/05/2011 - 14:11 | 1947258 redpill
redpill's picture

Hilarious new Ron Paul ad:

Big Dog, bitchez!

Mon, 12/05/2011 - 14:23 | 1947301 wisefool
wisefool's picture

Ron Paul must really be scaring the MSM. CNN is actually reporting about radioactive water leaking from fukishima instead.

George Will, a guy I used to repect dropped the "spoiler" tag on the good doctor this weekend. TPTB want Obama to win, (heavens to betsy we got Clinton stumping for gingrich) And obama will win, but the only "spoiling" Ron Paul is going to do is expose the narrative to the sheep who think their votes count.

Mon, 12/05/2011 - 14:23 | 1947302 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Call on Paul


Mon, 12/05/2011 - 17:11 | 1948225 boiltherich
boiltherich's picture

That is a commercial I can get behind funding, I just watched it and sent his campaign $100 though I am pretty broke.  I just wish everyone here who claims to support Paul would do the same.

By the way, I note that last evening the Obama Show/Nightly infotainment on NBC they had a top story about new poll numbers in a republican poll taken before Cain dropped out, Gingrich at 23% Paul at 21% and Romney at 18% and then they went on to do extensive talking about Gingrich and a little talking about Romney but not a single word about Ron Paul even though he is neck and neck with the leader of the pack.  I can't wait till he pulls ahead of Gingrich after Newt blows up his own campaign yet again (only matter of time before his own sex skeletons come tumbling out of the closet or he sticks his feet in his mouth) but it will be interesting when Paul is in first place and yet the MSM will not mention his name.   

Now I am going online to make my own FORMER DEMOCRAT FOR RON PAUL bumper sticker.

Tue, 12/06/2011 - 01:40 | 1949924 oldman
oldman's picture

Dear Whistleblower,

You may vote for this oldman, because he will not vote again this time unless your precious ron paul has the huevos to run as an independent, which he doubts.

Ron sounds good on the one or two issues that he captures the 'imagination' on, but honestly, he is very weak on the more important issues and certainly has little capacity for diplomacy, energy policy, habitat protection, and what we do in the next twenty years about our declining share of the world's markets.

I've listened to him for ten years now and though he raises my energy level with his 'can do' rhetoric, he hasn't had the balls as of yet to step out and take the chance that his own VERY CORRUPT party will cannabalize him.

I'm quite weary of reading all of the 'rah, rah, rah' comments by people who still seem to believe in the broken, bullshit system that you believe can be fixed by a simple lazyman's fluffy dream that your fucking vote is even counted.

I apologize for my crude language and do not mean to be personal but I have been 16 hours walking today and thinking about the hopeless condition of a nation that can only talk of change by mentally mastabatory process of walking once into a polling booth at their leisure and plugging their protest into a computer that has been corrupted by the same stupid broken machine

I'm sorry , but I can't even apologize properly     a very tired oldman

Mon, 12/05/2011 - 14:05 | 1947237 falak pema
falak pema's picture

damn vikings and drakars...

Mon, 12/05/2011 - 14:03 | 1947232 macholatte
macholatte's picture

Some have said that the Nordic Royals are an extreme power in the banking cartel with roots that go back hundreds, maybe thousands of years and were instrumental in the set-up of central banking and the House of Rothchild. Those bloodlines are comingled with all Royals in Europe.

Mon, 12/05/2011 - 14:15 | 1947277 Fluffybunny
Fluffybunny's picture

Yes, the Rotchild's are our lackeys.

Mon, 12/05/2011 - 14:35 | 1947389 GNWT
GNWT's picture

Correct, the Queen of the Netherlands is one of the founders of the Bilderburg Group.

Almost Nordic

Mon, 12/05/2011 - 14:37 | 1947394 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

European Royalty is one big inbred family.

Mon, 12/05/2011 - 17:00 | 1948180 Mauibrad
Mauibrad's picture

Not EU...Europe.

Mon, 12/05/2011 - 17:30 | 1948297 SWRichmond
SWRichmond's picture

How can the Euro be at 1.34, when all of the constituents are way below it, except one, and the one that is above it is only just a little bit above?

Mon, 12/05/2011 - 13:52 | 1947191 kaiten
kaiten's picture

And printing presses.

Mon, 12/05/2011 - 13:47 | 1947164 bank guy in Brussels
bank guy in Brussels's picture

Cool chart.

A long while ago, I think it was Ambrose Evans-Pritchard in the UK Telegraph, ran stories that some Germans were only accepting euro notes with the code number signifying that they were printed in Germany.

Mon, 12/05/2011 - 13:50 | 1947178 bank guy in Brussels
bank guy in Brussels's picture

Below the 'AAA' countries, Belgium is 'best of the rest'.

Not bad for little Belgium, considering.

Mon, 12/05/2011 - 14:43 | 1947426 Instant Wealth
Instant Wealth's picture



Belgium Z

Greece Y

Germany X

Spain V

France U

Ireland T

Italy S

Luxembourg *

Netherlands P

Austria N

Portugal M

Finland L

Slovenia H

Slovakia E

Cyprus G

Malta F

Estonia D

Mon, 12/05/2011 - 15:17 | 1947646 Nussi34
Nussi34's picture

I mostly have X. All the others I use to buy stuff. Gresham´s law!

Mon, 12/05/2011 - 15:22 | 1947673 Instant Wealth
Instant Wealth's picture

... could be wise, to use the Y´s first.

Mon, 12/05/2011 - 16:44 | 1948079 Nussi34
Nussi34's picture

Most of the EUR 100 notes that I get here in Germany are from Italy. I try to get rid of them ASAP!

Mon, 12/05/2011 - 17:00 | 1948182 Peter K
Peter K's picture

Always look to see the letter on the Euro. For some reason, can not get an X for the life of me. Anywhere. Glad I am not the only one with this problem.

Mon, 12/05/2011 - 16:10 | 1947906 turtle777
turtle777's picture

This has been debunked, even Ambrose admitted to it. I can't find the link right now, but the gist is this:

The X only signifies that Germany commissioned those notes to be printed. It does NOT mean it was actually printed in Germany. Theoretically, Germany could commission notes to be printed in France.

Many smaller EU countries don't print their notes themselves, so they would commission notes to be printed in Germany. The Euros would show the country code, but the printing of a German facility (e.g. P for Giesecke & Devrient in Munich.)

In short, the country code is not useful to determine "good" or "bad" Euros.

Mon, 12/05/2011 - 16:56 | 1948149 Peter K
Peter K's picture

Hugh Hendry noticed this phenomenon in Germany too.

Mon, 12/05/2011 - 13:48 | 1947166 Manthong
Manthong's picture

I thought they solved all those pesky problems.

Mon, 12/05/2011 - 13:48 | 1947167 RobotTrader
RobotTrader's picture

If we close up today.

NYSE Summation Index will turn back up.

Mo-Mo players will have no choice but to chase stocks again on the long side.

Gloomsayers will be watching the tape climb up and up with their jaws agape.


Mon, 12/05/2011 - 13:59 | 1947212 mktsrmanipulated
mktsrmanipulated's picture

Robo trader is your real name joe kernan or david faber.....keep breaking out the pom poms

Mon, 12/05/2011 - 14:32 | 1947365 GNWT
GNWT's picture

Markets - Robo is correct, do not fight the tape, higher highs and higher lows mean buy, the trend is your friend.

Pay attention, short your instrument on two hourly lower lows, lower highs or three, plenty of time for all this.

All counter moves are like the movie Jackass, just a matter of how high we lift the garbage bag before we drop it.

Mon, 12/05/2011 - 14:33 | 1947371 GNWT
GNWT's picture

You go...

Mon, 12/05/2011 - 13:48 | 1947169 The Reich
Mon, 12/05/2011 - 13:49 | 1947172 Irish66
Irish66's picture

just 4 more days of this, you promised

Mon, 12/05/2011 - 13:49 | 1947174 DaBernank
DaBernank's picture

I'm bullish cheap Greek holidays!

Mon, 12/05/2011 - 13:53 | 1947197 GeneMarchbanks
GeneMarchbanks's picture


Mon, 12/05/2011 - 13:51 | 1947187 Bobbyrib
Bobbyrib's picture

So if the EU broke down right now, everyone but Portugal would have a stronger currency than the dollar? I saw this on CNBC momentarily. I thought they said this was broken down in Euros, not dollars. This would be in comparison to dollars right? IIGS would have a stronger currency than us? I must be seeing something wrong.


Mon, 12/05/2011 - 13:52 | 1947192 Nothing real here
Nothing real here's picture

The ratios are relative to the current Euro, not the dollar.  Ergo, the German DM would be 36% stronger than it currently is within the  Eurozone.   You have to believe the DM would be much higher relative to the dollar. 

France and Austria would also be stronger.  Club Med would be much weaker. 


Mon, 12/05/2011 - 13:56 | 1947198 Bobbyrib
Bobbyrib's picture

Wow you answered my question one minute after my post (on purpose or by accident). Edit: Nevermind, you answered my question in your post.

Mon, 12/05/2011 - 16:48 | 1948096 Nussi34
Nussi34's picture

No the ratio is how many USD you get for one COUNTRY-EUR.

Mon, 12/05/2011 - 16:55 | 1948146 Nussi34
Nussi34's picture

Fair value for a new Greek currency, whether reviving the drachma or not, would be almost a 60% depreciation, to around 57 U.S. cents, he said.

Mon, 12/05/2011 - 13:52 | 1947194 falak pema
falak pema's picture

so do the germans have the longest ones? This should please M****! True 6" guaranteed or refunded. She is not very demanding. Which will make her very euro compatible. Difficult times for all Euro males, no moules frites every day, no Trappist beer! No chardonnay and pinot noir!

Mon, 12/05/2011 - 13:55 | 1947203 Bobbyrib
Bobbyrib's picture

Chimay is good shit too.

Mon, 12/05/2011 - 13:55 | 1947204 mktsrmanipulated
mktsrmanipulated's picture

ES keeps rallying but euro doesn't.....cant wait till those fucking algo scumbags eat it

Mon, 12/05/2011 - 13:56 | 1947205 RobotTrader
RobotTrader's picture

Macy's now printing 3-yr. highs.

Where is the recession?

Mon, 12/05/2011 - 14:12 | 1947260 Dick Darlington
Dick Darlington's picture

The recession is in the real world.

Mon, 12/05/2011 - 14:22 | 1947297 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Bernanke shops at Macy's!

Mon, 12/05/2011 - 14:19 | 1947289 Poetic injustice
Poetic injustice's picture

You're braindead.
How your exclamation corellates with topic?

Mon, 12/05/2011 - 13:56 | 1947206 aleph0
aleph0's picture



So rather than letting nature take it's course by reverting back to the Legacy Currencies,  the Euro will live on with about a 25% devaluation IMO.

This  would  conveniently put it at  ca.  1:1 with the USD.

Coincidence ?

... it would have been interesting to feature the USD and GBP into that graph
... and of course Gold.


Mon, 12/05/2011 - 13:59 | 1947213 Elwood P Suggins
Elwood P Suggins's picture

Irrelevant.  They obviously haven't heard yet that Merkozy kissed the Euro and made it well.

Mon, 12/05/2011 - 13:59 | 1947214 achmachat
achmachat's picture

As always.. the lovely "island" of Luxembourg simply doesn't exist!

Mon, 12/05/2011 - 14:16 | 1947280 Sudden Debt
Sudden Debt's picture

= transit zone + parking space :)

Mon, 12/05/2011 - 13:59 | 1947215 mcn
mcn's picture

What would happen to Euros held outside of a euro country such as a US company holding a Euro account?

Mon, 12/05/2011 - 13:59 | 1947217 mcn
mcn's picture

What would happen to Euros held outside of a euro country such as a US company holding a Euro account?

Mon, 12/05/2011 - 14:09 | 1947247 Sudden Debt
Sudden Debt's picture


Mon, 12/05/2011 - 14:00 | 1947220 mktsrmanipulated
mktsrmanipulated's picture

Robotrader  aka Joe Kernan....David Faber....Jim Cramer

Mon, 12/05/2011 - 14:00 | 1947221 JustObserving
JustObserving's picture

If so many European currencies will depreciate if the Euro breaks up, why are the people in those countries not busy buying commodities?  Why are gold and silver not skyrocketing?

There should also be a run on banks as people can hold Euros at home while Euros in banks will be converted.

Mon, 12/05/2011 - 14:17 | 1947264 Sudden Debt
Sudden Debt's picture

Most really don't have clue and don't care. Economics is for them the same as politics.

Second: it's pretty hard to buy gold and silver on the street at normal prices. We don't really have bullion shops and everything needs to be bought online.

Because every problem in the past solved itself. They forget they where solved by throwing money at it. 99% is optimistic about the future. So if the shit hits the fan, rage will rule.

Mon, 12/05/2011 - 14:01 | 1947225 Christoph830
Christoph830's picture

Bullish for U.S. tourists!

Mon, 12/05/2011 - 14:11 | 1947256 Piranhanoia
Piranhanoia's picture

trader;  I have a bag full of this currency, asking  X.xx.

bidder;  How much for just the bag?

Mon, 12/05/2011 - 14:14 | 1947271 Sudden Debt
Sudden Debt's picture

Is there a rope with the bag to close it?

Mon, 12/05/2011 - 14:14 | 1947273 Dick Darlington
Dick Darlington's picture


Mon, 12/05/2011 - 14:27 | 1947335 GNWT
GNWT's picture

Good one P, the paper could also be salvaged as firewood.

Mon, 12/05/2011 - 14:12 | 1947259 TheSilverJournal
TheSilverJournal's picture

A Euro break up would mean that the PIIGS would go bankrupt, All of Europe and European banks own debt from the PIIGS and own the banks of the PIIGS, so if the PIIGS go down, the entire European banking system goes down, which would cause all European currencies to be virtually worthless.

Mon, 12/05/2011 - 14:14 | 1947270 Dick Darlington
Dick Darlington's picture

A Euro break up would mean that the PIIGS would go bankrupt

Whaddaya mean the PIIGS would go bankrupt? They ARE bankrupt. There, fixed it for ya.

Mon, 12/05/2011 - 14:40 | 1947413 TheSilverJournal
TheSilverJournal's picture

SSSsshhh..the market doesn't know that yet. The only way to keep the malinvestments hidden is through the printing press with hyperinflation being the end result.

Mon, 12/05/2011 - 14:53 | 1947491 Dick Darlington
Dick Darlington's picture

Ooops, sorry! Me and my loud mouth... ;-)

Mon, 12/05/2011 - 14:36 | 1947374 JustObserving
JustObserving's picture

And the US dollar remains solvent with $707 trillion in derivatives?  If the Euro fails, the dollar fails too.  Of course the Fed will print a few trillion and few years later we will find out it was $50 trillion.

Did the Fed get back the $16.1 trillion it handed out during the previous crisis?

Mon, 12/05/2011 - 14:48 | 1947460 TheSilverJournal
TheSilverJournal's picture

...if the Fed exists in a few years. It's one giant worldwide fiat ponzi scheme and the trick is to keep the malinvestments from becoming exposed.

This is on my site:

A ponzi is a scam which pays early investors out of the investments of later investors. In a sense, the world’s monetary system is one giant fiat ponzi scheme with the only question being when will the ponzi end, not if it will end. The problem is growth is no longer able to keep up with the malinvestments caused by cheap money (0% rates + QE). Either cheaper money is provided in order to cover up the malinvestment (more QE, or purchasing of MBS, or printing money to purchase anything) is provided at an ever increasing rate, or the malinvestments become exposed. Allowing the malinvestments to become exposed is politically unfeasible, so cheaper money will be provided in order to keep the malinvestments hidden. In a sense, the new investor is the new printed money..once the new money stops or even slows, the ponzi fails, but keep the new coming in faster and faster and hyperinflation is the end result.

Mon, 12/05/2011 - 14:21 | 1947274 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

This graph is priced in dollars, and I understand that finance needs a metric of comparison, but the dollar is a failing asset as all fiat is.  So I would add 5% to 10% increase on all of these numbers.  A breakup of the Euro hits not only the Euro currencie in the face, but the idea and concept of fiat in general. 

One thing that still very few people understand is that the whole system is relient on funding mechinisms based on deceit and lies that the Fiat Ponzi is sutainable.  It is not.  It is not a matter of if, but when the system will fail.

The failure of the Euro is the first major step in this direction.

Mon, 12/05/2011 - 14:25 | 1947316 GNWT
GNWT's picture

Not sure what you mean by hoping to be proven wrong.

Do you mean that the right thing to do is to put the world citizenry on the hook for the bankster crimes?


Mon, 12/05/2011 - 14:40 | 1947408 Freegold
Freegold's picture

Not going to happen. Eurozone will hold and print until endgame. Endgame = gold revaluation beacuse this is THE only "solution" for this broken system. And it will happen either by choice or by natural law. Accumulate and wait and you will be rewarded bigtime.

Gold, go get you some while it still is on sale.

Mon, 12/05/2011 - 16:55 | 1948142 Bubba's gettin ...
Bubba's gettin learned's picture

If the euro was to break up what would the effect be on the swiss  franc in light of their pegging to the euro?  What are the costs/losses that SNB will  accrue from this?


Mon, 12/05/2011 - 17:38 | 1948295 smore
smore's picture

The euro at the stern of the Titanic will raise the USD at the bow momentarily, before the whole fiat ship goes down.


"Stubborn tradition" is Mr. Brands's explanation for the persistence of mankind's adherence to currencies backed by something other than the good intentions of the governments that print them. If so, humanity is stubborn for cause. The invariable rule on paper currencies, as the author does not quite right come out and say, is that they lose their value. Will the dollar prove an exception? The rising price of gold suggests that many doubt it.

Mon, 12/05/2011 - 22:13 | 1949325 Tompooz
Tompooz's picture

The Euro-project seems to have been "Federalism by subterfuge".  The cost of breaking up the zone is many times that of bailing out the PIIGS, so the choice of keeping the Euro and "print and federalize" is, although very undemocratic, a no-brainer for the politicians in charge.

The risk is a revolt-from-below, when the voters realize that they have been conned into a Federal Europe that they never voted for. Feelings of powerlessness will increase.

In the very unlikely case of a return to national currencies, it is a given that all the strong/core/nordic countries will keep their currencies pegged to each other. The SwissFranc too and wait for France being invited in, if only for the idiocy of separating Germany and France again into different camps. They might as well call it the Euro 2.0

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