6 thoughts on “Euro-Breakup Meme Takes Root”

  1. Is it too late to play?

    Even tho we’re buying a house, I think I can manage a few coins.

    I knew I should have bet when this fine site discussed this earlier this year.

  2. It’ll be interesting to see if and when the market forces the hands of Brussels. When will they learn…

  3. “The two main instruments by which truth reaches politics are votes and markets, which is why political Utopians instinctively dislike both.”

    “Utopians” = Fascists, Communists, Islamists, etc.

    It took me 52 years to figure this out.

  4. Jonathan: Further to our previous on this subject:

    From the Telegraph:

    EU dreamers get a reality check – what’s in store for Italian euros? By Charles Moore (Filed: 04/06/2005)

    In this week of great events in Europe, it was something small that really caught my eye. In an article about the problems of the euro, the German magazine Stern advised readers to check their euro banknotes. The notes issued in Germany, it explained, begin their serial numbers with “X”; those issued in Italy begin with “S”. Hold on to the former, was the suggestion, and get rid of the latter while you can.

    Being the proud possessor of 60 euros from a recent visit to France, I hurried off to check my little pile of pictures of long bridges stretching across our continent, and was relieved to find mostly reassuringly Teutonic “X” notes, one “Z” and two “U”s (is that France?). Phew, no “S”.

    Stern’s X-factor advice was based on the idea that the euro zone might break up. When the euro began in 1999, it was glorious for Italy, Spain, Portugal and (prospectively) for Greece. Their interest rates halved. Boom followed. But those countries had not abolished their inflationary habits when they abolished their currency, and now they had lost their old remedy of devaluation. As a result, their competitiveness is collapsing. Italy’s competitiveness against Germany has fallen by a quarter since 2000. Within the system today, all that Italy could do is to deflate, but in the resulting squeeze, revenues would fall, causing the deficit to explode. Real wages would have to be cut to compete with Germany. The politics would be horrible.

    An alternative would be for the European Central Bank to inflate from the present two per cent a year to, say, four or five per cent to rescue the Mediterranean spendthrifts. But if that happened, there would be revolt in Germany. That devout believer in sound money only sacrificed her beloved deutschmark and joined the euro to make European finances German, not to make German finances Italian. It is therefore beginning to cross German minds (and other northern European ones, as the Dutch referendum vote showed) that they might be better off outside the currency. Hence the need to scrutinise the banknotes.

    It reminds me of the spring of 1992, when people began to realise that the pound’s fixed minimum value against the deutschmark of 2.7780 was a doctrine of officialdom, not a fact. In September of that year, the pound fell out of the Exchange Rate Mechanism and floated free. Since then, the reputation of the Conservative Party has never recovered, and our economy has never looked back.

    I do not know whether the euro zone will break up (though I wouldn’t mind taking a small bet that it has less than 18 months to go in its present form), but Stern’s advice interests me for the same reason as the results of the Dutch and French referendums. They are all symptoms of that exciting moment in politics when reality starts to intrude upon the lives of statesmen.

  5. Another relevant article from the Telegraph:

    Blair gives up on his EU dream By Melissa Kite, Toby Harnden and Tony Paterson (Filed: 05/06/2005)

    Tony Blair has given up on Europe as an issue worth fighting for, senior allies of the Prime Minister have told The Sunday Telegraph.

    A leading Blairite cabinet minister made the admission last night as the European Union descended into deeper turmoil, with doubts surfacing over the future of the single currency.

    Mr Blair, who will seek to shift the focus of his administration on to poverty in the Third World this week during talks with President Bush, has told his closest allies: “Africa is worth fighting for. Europe, in its present form, is not.”


    Yet the crisis widened beyond the document alone, with a media offensive being mounted to bolster the euro after German officials and an Italian minister openly discussed its possible demise. In the first rumblings of a call for the franc to be reinstated, Nicolas Dupont-Aignant, a member of Mr Chirac’s ruling UMP party, said: “France, Italy and Germany would be in a better state without the euro. However, I don’t believe we should ditch it now.

    “But either it is reformed, and the central European Bank kick-starts growth by lowering interest rates and pursuing a more American-style monetary policy, or the euro will explode in mid-air.”

    The governor of France’s central bank, however, rushed to the euro’s defence. Christian Noyer said that the currency was “in no way under threat” following its fall in value since the No votes of the past seven days. He dismissed as “absurd” the idea of a temporary withdrawal from the euro by individual states.

    “The euro is a solid currency which brings us a lasting guarantee of stable prices and thus the maintenance of purchasing power for our wages and savings,” he told Le Parisien newspaper.

    The markets have been slowly adjusting to the possibility of the break-up of the euro, with the spread between government bonds in different countries widening.

    Last night, John Redwood, the leading eurosceptic Tory MP, said: “You can’t have a single currency without a single government. They are in a mess because they have only done half of it and they are now discovering in a painful way what that means.”

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