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The Euro does not work

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Economists warned that the Euro structure would not work, two decades ago. Economists were right. The fact that the existence of the Euro as a monetary union is (essentially) being debated in all night conferences is a comment on the failures of the European structure.
  • Regardless of the outcome, the negotiations reveal the extent of the disagreement between France and Germany – which has long term implications for Europe. Contagion risk (via bank runs) is still present – and there does not seem to be any attempt to address this.
  • The Euro area remains a current account surplus bloc, so the Euro's value ultimately is a function of Europeans' willingness to sell their currency. So far the concern seems to be about where Euros are domiciled, not exiting the Euro.
  • Elsewhere (there is life outside of the Euro) Chinese exports were stronger than expected and imports less weak than expected. Currency distortions play a role, but it is a more positive global growth signal. UK credit conditions data is due.