The Euro

H

Highterm

I would like to hear members thoughts on what the practical outcome might be for Euro deposits held outside of the EU if the Euro system were to collapse or its stronger members, such as Germany, were to pull out.
To be clear, i'm not asking whether you think the Euro will collapse or not, just the outcome for external Euro holders if it did.

Presumably Euro deposits held inside EU countries would simply either revert back to the national currency or into ‘new’ Euro blocks (stronger northern block/ weaker southern block). But holders of Euros held outside of the EU would be concerned that their Euros retain their value and are based on the stronger northern block members, such as Germany rather than the weaker southern block members such as Greece.

Many billions of Euros are held outside of the EU by corporations and investors etc. So, if an announcement were made by Germany that it was about to leave the Euro, or form a separate block with other stronger members, surely there would be a chaotic scrambling of currency transactions by external Euro holders, with the currencies of the stronger block rising and the weaker block falling.

Is there some mechanism in place for dealing with such an event and is there anything that external Euro holders can do to pre-empt such an event to ensure that their Euros would retain their value by being based on or tied to the German currency?

Thoughts anyone?
 
I am not an economist, but here are my views on the current situation in Europe.

If the debt crisis in the PIIGS gets worse, the Euro will dissolve altogether. I do not see a scenario where there will be a northern currency and southern currency due to that fact that economic and political considerations among other factors make it infeasible.

In light of that, it seems unlikely at this point that countries within the European Union will revert back to their original currencies. Too much time and effort have been invested for that to happen easily. Euroeuros obviously are at risk as if the Euro continues to weaken as many have forecasted. However, I see this as a simple matter of currency risk. For now, the U.S. seems to be doing better relatively, and protecting the value of Euros can be accomplished by hedging with the EUR/USD cross.
 
To my knowledge, there is no such mechanism in place. Thus the outcome of such a currency crisis is not well defined.

My guess is that it would depend on what sorts of assets are held by each individual bank against the EUR-denominated deposits. For instance, if, god forbid, your EUR deposit at a German bank is funding some nice yieldy Greek paper, you'd better be ready to rumble.
 
I'm writing a paper for The Bruges Group on europe stability as a result of aggregate demand constraints, if you wish you can have a look.
 
@Highterm,

One cannot answer the question you are asking about the euro if one does not know the detailed history of the euro, which country is supporting it, which country desperately wants it, which country does not want it and which country wants to get away from it.

I do not have time to write everything down in detail so I will tell you only one thing. Germans do not actually like the Euro. This is the source of all problems. So they play the game of the cat and mouse because they do not want to be blamed for another European catastrophe.

There are two ways for the Germans to get away from the Euro

(1) They leave EU (politically unacceptable)

(2) They over-compete with the South until those countries go broke and Euro dissolves. The first victim was Greece because of corrupted politicians that submitted to German directives.

You get the point I hope...
 
Oh, those gold old days a mere few years ago... the mideast including Iran, China, Russia... all thinking that maybe they should rebalance their reserves and add more Euros...

How the world changes!

So what's the alternative? The First form of money will also become the last form of money.

Gold.
 
^^^That was before the US was in their backyard (sometimes literally).

With the US military backing the dollar for the time being, and the US military being a much more significant presence in the immediate vicinity of those countries...the dollar will probably stick around for the next year or two.
 
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