The pain in Spain has clearly arrived. Spain has now completed its bond auction paying an average interest rate of 6. Day of reckoning nearing. Not exactly going to be a rival to 'Too Big to Fail is it'? I suppose they could call it 'Too Big to Fix '.
In a statement today it said: "Italy is likely already in recession and the downturn in activity across the eurozone has rendered the task of the new Government much more difficult.
Sustaining political and public support for structural reforms and austerity will be challenging in the face of rising unemployment. Convincing investors that the reforms will be effectively implemented and will boost economic growth over the medium term will be equally if not more challenging. Await more downgrades?
The risks of deleveraging by Western banks are large. Hungary needs IMF funds. The panic is spreading to the very heart of Europe. Germany attempted to sell 6 billion euros of year bonds today. But get this: Investors were only willing to buy 3.
Watching the press conference yesterday I was struck by the almost surreal level of calm on display by the 3 participants. Italian borrowing costs reach new highs Italy paid a record euro-era yield of 7.
ING's base case is that the euro will survive. If it does not, France and Belgium would devalue 15 percent against the new Deutschmark; Ireland and Italy by 25 percent; Portugal and Spain by 50 percent; and Greece by 80 percent, the bank projects. The member euro zone is already paying a heavy price for the repeated failure of politicians to end uncertainty over the future of the single currency. Leading economists and former policymakers polled by Reuters last month predicted the euro zone is unlikely to survive its sovereign debt crisis in current form.
Crumbling confidence, reduced bank lending, a powerful contractionary fiscal and monetary stance across the euro zone and sky-high bond yields have formed what ING's global head of financial markets research, Mark Cliffe, calls a deleveraging doom spiral.
However, exits or a break-up would be costlier still. Personal Finance. Your Practice. Popular Courses. Table of Contents Expand. State of the Eurozone. End of the Schengen Area. Impact Outside the EU. Reintroducing National Currencies. Impact on Banking, Forex, and Trade. A collapsed euro would likely compromise the Schengen Agreement, which allows free movement of people, goods, services, and capital. Each member country would need to reintroduce its national currency and the appropriate exchange rate for global trade.
Eliminating the euro would also decentralize monetary authority back to the member nations. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. International Markets The U. Partner Links. Eurozone The eurozone is a geographic area that consists of the European Union EU countries that have fully incorporated the euro as their national currency. If there was a run on Italian banks, there would be knock on effects for other European banks and financial institutions who have stakes in Italian banks.
They would lose money in the bank run, and there would be a fall in confidence. It would lead to a European wide decline in Bank Lending. A credit crunch would lead to lower economic growth in Europe. It is hard to predict, but the uncertainty and scale of bank flows could lead to a significant drop in European output. This would be socially very damaging given the scale of unemployment already in existence in Europe.
Given the prolonged recession and current high unemployment, this would be particularly unpalatable. The main reason for the fall in UK output would be. If southern Eurozone economies leave the Euro, it will lead to a transfer of capital into Germany as investors seek a safe haven away from devaluing southern Europe.
This could lead to an appreciation in the remainder of the Euro, although if markets fear even the future of Germany, they may seek other currencies. It also depends on the extent of German losses from Italian and Spanish banks. However, Germany would be badly affected by a deep European recession because they rely on exports to other European economies. Many commentators focus on the short-term costs of a Euro break up. However, another way of looking at a Euro breakup is that it needs to break up or at least be fundamentally changed.
The fundamental uncompetitiveness of southern European economies is a disaster for their long term economy. In the Euro, they fear years of austerity, low growth and high unemployment. Leaving the Euro enables their currency to reach a level which reflects their underlying competitiveness. It means that out of the Euro, they will have more flexibility and will be able to at least target economic growth rather than the overwhelming insistence on budget cuts. From a social perspective which is worse?
The Euro may scrape through the next few years, but even if countries do survive, the fundamental problems will not be solved. There is still the inevitability that countries will have diverging competitiveness and the problems this brings in a single currency.
Whilst the Euro survives in the current form, there will always be this risk that countries face negative growth, rising debt, high unemployment and no real viable policy measures to overcome them.
However the end of the Euro may not necessarily mean the end of the EU — just 17 out of the 27 members have adopted the Euro. Readers Question: What would happen if the Euro collapses? European Credit Crunch If there was a run on Italian banks, there would be knock on effects for other European banks and financial institutions who have stakes in Italian banks. Economic Growth A credit crunch would lead to lower economic growth in Europe. How Will the UK be Affected? The main reason for the fall in UK output would be Fall in exports to Europe UK financial sector hit by European credit crunch Loss of financial and consumer confidence as a result of the break-up The UK could also see an appreciation in the Pound as investors seek alternatives to the Euro.
How Will Greater Germany be Affected? This will not be solved by any fiscal stability pact which limits government borrowing. Breaking up the Euro — Why it would be horrible at Economist. We use cookies on our website to collect relevant data to enhance your visit. Our partners, such as Google use cookies for ad personalization and measurement.
However, you may visit "Cookie Settings" to provide a controlled consent. Cookie Settings Close and accept all. Manage consent. Close Privacy Overview This website uses cookies to improve your experience while you navigate through the website.
Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website.
We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary Necessary. Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously. It does not correspond to any user ID in the web application and does not store any personally identifiable information. The cookie is used to store the user consent for the cookies in the category "Analytics". The cookies is used to store the user consent for the cookies in the category "Necessary".
The cookie is used to store the user consent for the cookies in the category "Other. The cookie is used to store the user consent for the cookies in the category "Performance". This cookie is used to check the status whether the user has accepted the cookie consent box. It also helps in not showing the cookie consent box upon re-entry to the website.
It remembers which server had delivered the last page on to the browser. It also helps in load balancing. It does not store any personal data. Functional Functional. But how much that ideal could survive the crash of the euro is open to question. Many experts worry that a collapse of the eurozone could also bring the collapse of the European Union itself. Tsakloglou fears that protectionist feelings would grow to such heights with the collapse of the euro that it's hard to imagine any of the revenue sharing that currently underpins the EU could continue.
However, I have the feeling that the political pressures will be enormous," says the Greek economist. I have a feeling that there will be a huge political backlash asking for cutting any ties with these countries. No wonder, too, that as the amounts of money needed keep growing, so do worries of what might happen if the efforts fail. Merkel: 'Fiscal Union' For Eurozone.
Deep Concern As Eurozoners Meet. Obama Hosts Euro, Iran Talks. Editors' Picks. In Photos: Years Of Dostoyevsky. Back to top.
0コメント