An output of the Eurozone is possible?
The question on many lips in recent months: should we leave the Euro? I will not try to expound on the advantages and disadvantages of the single currency, others will do better than me. I just would note that it was a very strange idea of unifying the currencies of countries like Spain, Greece or Ireland with states like Netherlands, Finland and Germany had known for twenty years in very different stages of development. For cons, the question terms of technical output of the single currency is often dealt with too briefly and without any real thought. I'm far from an expert in the subject, but some basic thoughts are doable at my level.
Are there other examples of disunification money in economic history?
Two examples are often monetary disunification recalled: that of Czechoslovakia in the early 90s and the withdrawal of the bond of automatic conversion between Argentina Pesos and Dollar. The first example is completely irrelevant. Compare the European Union with its hyper-integrated financial system and banks ultra-responsive two-country emerging from 45 years of communism with a financial system is prehistoric nonsense. The Argentine case is probably more interesting. The Argentine State had established an automatic conversion between the dollar and the Argentine Peso. Each account was legally worded in both peso and dollar and the central bank pledged to exchange all Peso Dollar at a fixed rate. Obviously, when doubts were raised about the strength of this conversion to fixed rate, the Argentines wanted to shelter the dollars they were promised. What followed was a happy mess and a series of authoritarian measures that have sacked Argentine economy. The Argentine case is perhaps the epitome of what he should not do when they exit from the euro. However, we must not forget that Argentina had put herself into this mess and that his exit from this absurd system of parity not challenged its economic health and not only those of its neighbors.
Why a default Greece would she leaving the euro?
Many commentators argue without really understanding why: Greek a default would entail leaving the Euro. A state that can not repay its creditors in three solutions: * Do
only partially repay its creditors, that is to say only repay 90%, 70% or 50% of the bonds on the financial markets Financial
* Seek outside help to another sovereign state or the International Monetary Fund
* Rotate the board to note, that is to say create money from scratch in order to repay its debts
The first solution seems almost impossible. First, it would result in heavy losses for the financial sector. We understand that this option was unthinkable for our rulers. Much more serious, such a measure of the Greek state would likely result in a panic on financial markets. Investors fear that Portugal, Spain or Ireland did the same. Investors then ask very high rates for these countries to cover the risk of a partial payment of the obligation. Thus, these countries would have a terrible time to raise money and also may fall into default. is the risk of contagion .
The second solution is one that has been used to solve the crisis in Greece. The IMF and the European Union have agreed to support Greece. However this method has its limitations. The countries of the European Union are almost all heavily indebted and the IMF is largely funded by the EU, the U.S. and Japan, all three major budgetary difficulties. It is likely that this strategy to reassure investors at the moment is short lived if the difficulties persist
We come to the third option: the famous printing money. Currently, no state in the Euro Zone has his hand on the ticket board. Monetary functions are delegated to a fully independent European Central Bank. Thus, to use the board to note, the Greek state should recover its monetary sovereignty and be able to create the national currency to repay its debts: a return to the drachma and leaving the euro.
(There is actually a last alternative that is currently widely used. The ECB board turns the ticket to buy government bonds in the Euro Zone. Long snubbed the pretext of monetary conservatism, Jean-Claude Trichet has ended up like his buddies in the Fed and the Bank of England. To my knowledge, we do not really know what the ECB buys bonds but it is a safe bet they are trying to assist states in difficulty. Thus, even in default of payment, a European state can be now be lending money covertly by the ECB. It is now totally illegal under the current statutes of the ECB, but do not expect, all the safeguards of monetary conservatism jump gradually, it jump too, if not already blown for a while. All this as usual in the greatest obscurity. )
Can we announce in advance his exit from the euro?
Perhaps the funding problem. If output announced by Greece or Portugal, everyone would expect the value of currency collapses of the two countries against the euro. Thus, in one month, prices could rise from 1 € = 200 Escudos to 1 € = 300 Escudos. Thus, person or Portugal or Greece have no wish nor Drachmas Escudos but neither would keep Euros. We could then fear massive transfers from Portugal or Greece to other European countries. But the financial systems of these countries are already largely indebted to the European financial markets. Greek and Portuguese banks would have their deposits dry up forcing them to borrow from European banks in Euro .... An output of the euro announced in advance could put immense difficulty in the financial system and thus the economy of these countries. The people panicked at the thought of seeing his savings depreciate would jump on banks to withdraw cash in Euros. A release announced a scenario could lead to Argentina.
output by surprise?
You wake up one morning and declare that all accounts domiciled in France are now Franc denominated at a rate of 1 € = 6.55 F unless you have been warned. That is thanks to what types of authoritarian methods output of the Euro would be most likely. In short, we are very far from the standards of democracy. Also note that holding an output of the Euro and maintain the secrecy around it is almost miraculous.
A State can climb out of the euro?
A unilateral exit from the euro raises the problem of contagion. Indeed, if Portugal out of Euro, everyone will expect that other countries do the same causing a massive transfer of funds from trade-deficit countries such as Spain, Ireland France to the surplus countries such as Germany, Austria and the Netherlands, resulting in a happy mess is likely to cause financial collapse of the Euro Zone in the greatest confusion. The hypothesis of a unilateral exit is, in my opinion the most dangerous and should be avoided at all costs.
What kind of output would be feasible?
To operate without much of an impact, it seems that out of the Euro should be concerted and organized in great secrecy between government and financial institutions. The scenario is perhaps the following: * The 1
st January 2012, to general surprise, the Heads of State of the Euro Area announces the end of the single currency and a return to national currencies
* The account is located in France will be automatically franc, the accounts domiciled in Germany denominated deutchmark
* The Euro will continue to survive as a synthetic currency. The price of the Euro would be defined as a basket of currencies of the Euro area weighted by the economic weight of each country. Thus, the euro notes could still be short and accounts denominated in foreign euro still have a legal value. States may soon impose a ban on cash transactions in euros in order to precipitate the transition to the national currency. The Euro will become a reserve currency purely synthetic. Naturally, the float France permanently against the euro and would be maintained at a fixed rate through interventions of the Bank of France on the money markets.
* Government bonds are now denominated in national currency. Thus, the French state should pay its debts in France. I doubt the legality of such a passage, but we know that in time crisis, the legality always going to second
* Regarding the rest of private contracts: two possibilities. It could either impose an authoritarian way of a passage in Euro sign contracts before the outbreak of the euro in national currency, or keep them in Euro which would remain as we have said synthetic currency.
Here's a possible scenario of an exit "soft landing" of the euro. The issue of secrecy is essential. How to consult and to 15 to organize an outing in conjunction with financial institutions without any noise does not run. This seems to be mission impossible that our leaders would face if they wanted to end the single currency.
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