Four Precious Days to unravel Twelve Years of Madness

Almost a year ago on 30th November 2010 I wrote

"I will be surprised if the euro still exists in it's current form in 2012 never mind 2013."

 While few would deny that it has been a tough year for the euro; it is still with us.  Will it make it into 2012?  I wouldn't bet on it and here's why.

The euro  is run by Germany; France dances around as if they are somehow important but basically Sarkozy is just a performing poodle, Merkel is the show girl, she calls the shots. 

Most of the past six months have been spent with world leaders notably China, USA - yes the UK as well - telling Angela Merkel to get a grip on the problem, by which they mean Germany must underwrite the debts of other euro zone countries.  Merkel meanwhile has been ignoring these pleas and relying on shovelling austerity medicine down the throats of Ireland, Italy, Greece and Portugal.  It's not been a pretty sight we have had bloodless coups in Italy and Greece which are now governed by unelected off shoots of the EU and we have had riots mainly in Greece but also in Italy, Spain and Portugal.  The really bad news is that the austerity medicine is not working Greece is just a couple of weeks away from default - it won't happen more taxpayers money will be thrown into the black hole - Portugal needs a second bailout and interest rates on Italian debt have nudged eight percent. 

It all change this week when the really powerful people told Merkel to get a grip on the situation.  The bond markets spoke when they failed to invest in German bonds to the tune of over €2 billion.  As a consequence interest rates on German bonds rose above UK gilts.  Merkel will not ignore these voices.

Merkel now knows austerity measures for the PIGS will not work on their own.  She must either gamble the economic prowess of Germany by underwriting the debts of all euro zone countries.  A decision that will be hugely unpopular in Germany and will certainly end her political career.  Alternatively Merkel can attempt to unravel the euro in a controlled manner; this is also a high risk option but she may well believe that at least the risks are shared with the other euro zone countries, not to mention most of the rest of the world.  That way everyone has a stake in a successful outcome.

Banks across Europe and many other countries around the world will close on Friday 23rd December and not reopen until Wednesday 28th December.  Four precious days to unravel twelve years of madness.

I'm sticking with my prediction.

Best Wishes

Will