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Is it time to start seriously prepping for a Euro collapse?

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Investment gurus say something like “capital flows to countries with the highest rates of possible returns, so returns on global capital markets should be equal over a multi decade horizon”. I say “tell that to someone living in North Korea !!”

Is it possible that Europe goes down permanently?

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Posted by FUЯ ION
Posted on 02/07/2017 8:52 AM
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The real question is not whether it will collapse, but whether it will slowly unwind into something different. I think the most likely scenario of an unwind is that several countries leave the Euro. So, maybe Greece, Spain, Italy and a few other of the current account deficit countries leave and bring back their old currencies. But the rest will remain. The Euro will remain in some form. The question is whether countries will leave. I still think that’s unlikely because Germany doesn’t want that to happen and Germany is really calling the shots.

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Cullen Roche Posted by Cullen Roche
Answered on 02/09/2017 1:24 AM
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    EU couldn’t stop the UK from leaving. Are they gonna prevent Netherlands, France and Germany from leaving too? There’s so many things that is messed up about the EU and they’re intentionally ignorant about the problems they’ve caused (as all politicans are wont to do). When in history do politicians ever admit error and reverse course? I can only think of New Zealand in the early 90’s and the guy was drunk!

    So I wouldn’t make individual country predictions on this subject if I were you. About the only thing anyone can say for sure is the Euro is toast and is going below par.

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    Posted by MachineGhost
    Answered on 02/11/2017 4:02 PM
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      “EU couldn’t stop the UK from leaving.” But the UK has had its GBP all along, so this example is not a good one. The Euro survived Brexit just fine.

      “About the only thing anyone can say for sure is the Euro is toast and is going below par.” Why is that certain? “Below par” relative to which other currency? And why is that “par” (or any other absolute value of a currency pair) so special?

      As has been reported in many places, LIBOR has been increasing (and the increase may be permanent due to the US money market rule changes phased in in Oct 2016 (“US money market fund reform: an explainer”, https://www.ft.com/content/93679bf0-0be4-11e6-9456-444ab5211a2f). As a result, EUR funding is becoming more competitive with USD funding, since the EZ QE is still on and the rates are low. EUR is not going away any time soon.

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      Posted by vlad
      Answered on 02/19/2017 10:58 PM
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        That’s true, the Euro rests upon German hegemony and not the UK.

        Below par vs the USD. I doubt it would go below par via all the junky third world currencies with outstanding sovereign debt denominated in USD. But in currencies, relative strength wins. I don’t think par per se is special its just an easy way to say $1.

        So basically higher interest rates, a booming economy and the debt problems will force the USD up via the EUR. Add in the political and financial dysfunction and the non-democratic nature and it’s not a good outlook for the EUR. The Eurocrats could always surprise us and seriously reform but if there’s one thing that politicians absolutely hate to do, it is ever admit they are wrong (because then that would mean owning up to the responsibility that their previous “medicine” caused whatever the current ruckus is.)

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        Posted by MachineGhost
        Answered on 02/20/2017 1:02 AM
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          One thing to note is that simply dumping the Euro and switching back to their own sovereign currencies is not going to suddenly make certain failing European economies more productive overnight. For example, if X never manufactured cars before they are not exactly going to be able to compete at the level of behemoths such as France and Germany. Even if X sells their cars at dirt cheap prices, low prices often imply poor quality to the mind of the consumer, so theres that thing. Not to mention the IP, regulatory and technology hurdles X has to overcome to even be able to compete in the first place.

          IMHO some form of basic income will eventually have to be implemented in order to prevent mass social and economic disorder. A fragmented Europe in the face of a dominant Russia / China is simply an unacceptable option for the European Elite.

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          Posted by Incognito 7
          Answered on 02/20/2017 9:22 AM
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            “So basically higher interest rates, a booming economy …” Do you mean a “booming US economy”? What data is there to back this claim up? Do you realize the US economic growth has been below that of EZ for quite a while? To quote from “Eurozone economy quietly outshines the US” (https://www.ft.com/content/0bbc026a-ea12-11e6-967b-c88452263daf):

            >”The eurozone economy has now posted 14 consecutive quarters of growth, the unemployment rate has returned into single digits, and economic sentiment has reached its highest level in six years. The numbers contrast with common depictions of the eurozone economy as stagnant, sclerotic and perennially underperforming.

            Despite deep concerns about Italian banks and Greece’s long-running financial crisis, eurozone growth in the fourth quarter of last year was estimated at 0.5 per cent, faster than the US rate. For 2016 as a whole, growth in the eurozone outpaced that in the US by 1.7 per cent to 1.6 per cent.”

            Continuing your quote:

            “… and the debt problems will force the USD up via the EUR. Add in the political and financial dysfunction and the non-democratic nature and it’s not a good outlook for the EUR.”

            As if the US has not had and does not continue to have its own large share of political dysfunction. Trump is the president, for the love of God, and he is talking up more US debt, talking down USD strength, and is in an all-out assault on the “democratic nature”.

            There are only 3 currencies that can seriously compete for global status: USD, EUR, and Yuan. China has been rowing back their market reforms, increasing barriers for capital entry/exit, and (as already posted in http://www.pragcap.com/ama/foreign-central-banks/) they have resumed buying USTs. So Yuan is not going to the #1 spot for a while yet. That leaves USD and EUR and, coupled with the increasing costs of USD funding (as posted above), EUR is far from being out for the count.

            (on the increasing USD funding costs, see also Alex Merk: http://www.merkfunds.com/merk-perspective/insights/2016-10-04.html)

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            Posted by vlad
            Answered on 02/20/2017 12:40 PM
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              Yes, I was referring to the U.S. if Congress takes a clue from Trump. That remains to be seen. Competition is a wonderful thing, but I’m not sure the EU was motivated by the rest of the world outcompeting them vs following their own austerity ideology. It’s always possible the private sector in the EU could ignore and shake off the burgeoning sovereign debt crisis, but that too remains to be seen. The EU isn’t a democratic libertarian federalism like the USA, so the entrenched technocrats will in all probability go down with their ship. They don’t like to admit failure; it appears weak.

              In other words, while the EU blows up, the Euro is unlikely to benefit from any flight to safety compared to the USA.

              If you watched Trump’s speech last night cajoling Congress, you’ll know how silly “an all out assault on our democratic nature” really is. That’s just left-wing loony liberal pablum to rile the ignorant base. In the real world (instead of the fictitonous political world), we have a legal separation of powers (and a lot of unilateral lawsuits!) to prevent a Venezuela and Zimbabwe from happening. That’s our “rule of law” that we’re (or used to be) famous for. But I digress.

              If the EU can somehow manage their various crisises and implement the fiscal and monetary structural fixes necessary AND the people en mass also want the technocrat’s vision of a Federal Europe with a Federal police force that protects the technocrat’s interests (which is NOT what members originally signed up for), they could pull it off and give the Euro a potential level of “reserve currency status” beyond just Germany’s hegemony. But the EU is so undemocratic, I just don’t see how the self-interested, career technocrats at the top will respond to bottoms-up, market pressures compared to the USA.

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              Posted by MachineGhost
              Answered on 03/01/2017 4:51 PM
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                So in the end, you’ll just have a political outlet of referendums on voting to leave or not. The relevant question here is if the strong member Netherlands, France and Germany vote to leave and the austerity chokehold on the poorer/Southern members is therefore removed, will the Euro then appreciate? Historically says yes.

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                Posted by MachineGhost
                Answered on 03/01/2017 4:55 PM
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