Europe on the brink of currency crisis meltdown

[OwlHoot]

Ambrose Evans-Pritchard is on tip-top doom-laden form today:

Europe on the brink of currency crisis meltdown

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

The latest data from the Bank for International Settlements shows that Western European banks hold almost all the exposure to the emerging market bubble, now busting with spectacular effect.

...

As a Europhobic my first instinct is to laugh like a drain and hope the Euro collapses in a big heap, or several. But if that happened, then longer term the EU would only take the opportunity to dream up something even worse.

[HairyArsedBloke]

AEP has been banging on about the collapse of the euro since it started and gets just about the same ridicule as we give Atw and his deep understanding of economics. He has been compared to Frank Doberman of the self-righteous brothers. “OI! Euro NO!”

However, I believe AEP is right; the euro is a flawed project and that one or more of the southern states may drop out. The economies are far too diverse and still haven’t converged as much as was predicted.

The UK is highly unlikely to enter the euro for economic reasons, but politicians do all sorts of things that are not in our best interests. Except in the very recent past, Sterling is more closely correlated to the US Dollar than the euro; it makes more sense to form a currency union with them.

[AtW]

Euro won't fall apart, if I were you I'd be more worried about pound.

[BlasterBates]

hmm I think we should be worrying more about the implosion of the pound.

pound falling

Doesn´t look good over the last year or so it has lost 20% of its value against the Euro...not exactly confidence inspiring really.


EUR-GBP exchange rate

I think the scenario of Scotland becoming independent and leaving the pound is more likely than Italy or Spain leaving the Euro.

[AtW]

As oil prices fall the economic case for Scottish independence will falter - hopefully we will see oil drop below $40 where it belongs, or more around $25-30 which used to be the price range OPEC liked before they got taste of $150 per barrel and ability to buy football clubs, take bribes in exchange for lucrative weapon contracts etc.

[HairyArsedBloke]

As oil prices fall the economic case for Scottish independence will falter - hopefully we will see oil drop below $40 where it belongs, or more around $25-30 which used to be the price range OPEC liked before they got taste of $150 per barrel and ability to buy football clubs, take bribes in exchange for lucrative weapon contracts etc.

Crude was 25 bucks when the dollar was worth a lot more than it is now. Look at the dollar index since, say 2000, it has steadily declined until about May-June when the current nonsense kicked off big-time. Oil has done the opposite.

[AtW]

Crude was 25 bucks when the dollar was worth a lot more than it is now.

Indeed, however that was just 10 years ago and if we assume dollar lost 50% of its value then we'd be looking at fair oil price at level of $35-40. More importantly other commodities are finally dropping.

Iraq potentially can deliver a lot of cheaply produced oil, situation there is getting better now, once US leaves hopefully Iraq local leaders whoever they are decide that living a life of luxury is preferably to dieing trying to kill other people.

[BrilloPad]

Euro won't fall apart, if I were you I'd be more worried about pound.

atw has spoken - now we know the pound is safe.

[AtW]

As long as pound drops against dollar it's okay by me.

[HairyArsedBloke]

Indeed, however that was just 10 years ago and if we assume dollar lost 50% of its value then we'd be looking at fair oil price at level of $35-40. More importantly other commodities are finally dropping.

Iraq potentially can deliver a lot of cheaply produced oil, situation there is getting better now, once US leaves hopefully Iraq local leaders whoever they are decide that living a life of luxury is preferably to dieing trying to kill other people.

Oh FFS, you have no idea have you!

When did commodities start to drop? When the dollar started to strengthen. Look at the commodity indices (btw, 20% down on a year ago). Again look at the inverse correlation to the dollar index.