...Investment experts at Deutsche Bank now feel that a collapse of the common currency is "a very likely scenario." German companies are preparing themselves for the possibility that their business contacts in Madrid and Barcelona could soon be paying with pesetas again. And in Italy, former Prime Minister Silvio Berlusconi is thinking of running a new election campaign, possibly this year, on a return-to-the-lira platform.
Nothing seems impossible anymore, not even a scenario in which all members of the currency zone dust off their old coins and bills -- bidding farewell to the euro, and instead welcoming back the guilder, deutsche mark and drachma.
It would be a dream for nationalist politicians, and a nightmare for the economy. Everything that has grown together in two decades of euro history would have to be painstakingly torn apart. Millions of contracts, business relationships and partnerships would have to be reassessed, while thousands of companies would need protection from bankruptcy. All of Europe would plunge into a deep recession. Governments, which would be forced to borrow additional billions to meet their needs, would face the choice between two unattractive options: either to drastically increase taxes or to impose significant financial burdens on their citizens in the form of higher inflation.
If the Euro does collapse, and I agree that it is a real possibility, then Mike Cuggino over at PRPFX is going to look like a genius for holding onto that 10% allocation in Swiss Francs.
Trumpism is not a philosophy or a movement. It's a cult.
Ad Orientem wrote:
If the Euro does collapse, and I agree that it is a real possibility, then Mike Cuggino over at PRPFX is going to look like a genius for holding onto that 10% allocation in Swiss Francs.
Unlikely! The Swiss put in price ceilings on the Euro appreciation last year. They were getting killed with their exports because the franc went up so much in value vs. the Euro. Gold would likely work better. I like the fact that no single central bank can just swoop in and declare an artificial price ceiling on gold. The Swiss may very well put in tighter capital controls on the franc to address the situation if the Euro goes away.
Last edited by craigr on Mon Jun 25, 2012 4:55 pm, edited 1 time in total.
Ad Orientem wrote:
If the Euro does collapse, and I agree that it is a real possibility, then Mike Cuggino over at PRPFX is going to look like a genius for holding onto that 10% allocation in Swiss Francs.
Unlikely! The Swiss put in price ceilings on the Euro appreciation last year. They were getting killed with their exports because the franc went up so much in value vs. the Euro. Gold would likely work better. I like the fact that no single central bank can just swoop in and declare an artificial price ceiling on gold. The Swiss may very well put in tighter capital controls on the franc to address the situation if the Euro goes away.
I have doubts about how tight the Swiss can get in capital flow restrictions given their position as one of the world's de-facto banking capitals. And I wonder what currency the Swiss might try to peg the Franc to if the Euro blows up. Maybe the Deutsche Mark or the Dollar? I concur that gold is absolutely the best play against a major currency crisis or severe inflation. And your observation about gold not being something that can be suppressed (at least not easily) is one of the reasons why I am very leery when people start talking about going back on a gold standard. I like gold exactly where it is, serving as an extra-national reserve currency.
Trumpism is not a philosophy or a movement. It's a cult.
