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Will the euro crash in 2011


Devon
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I know there have been doom mongers since its birth but it is looking like 2011 will be the real test for the euro. What are the chances of  a 2 tier euro by the end of 2011 with poorer/bankrupt countries like Ireland and Greece being expelled by the stronger countries like Germany?

Another good reason for the collapse of the euro is I have nearly finished my house in France. Sod's law is now, I do not need to change much more money, the £ will be back up to 1.5 French euros by December [:D]

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At the moment the UAE / Euro rate is AED 4.76577 / Euro.

That is a good rate for me to buy Euros, but, I can almost guarantee that by the end of the month Euros will be cheaper......why? because I get paid in UAE dirhams with my Euro salary converted at the prevailing rate. After pay day the Euro will cost me more - Sods law rules.
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Obligations will test soverign debt during 2011; Portugal will be next on the list for  obligatory (pun intended) help despite the remonstrances of Socrates and Barroso. The EU should be able to absorb this with relative equanimity but the case of Spain due to the greater size of the economy wll not be so easily presented as a convincing case to the german nation.

In the meantime I am in the longer term concerned about the financing of my second residence on Hydra; the completion last year of the chapel in the garden has established the property as a "lieu de culte" and accordingly not being subject to property taxes or capital gains tax. I always have doubts about the germans continuance to politically support such greek fiscal niches.

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Nothing can be said about the short term, but in the long term two currencies are under  threat :

1 - Pound sterling, because money printing has tripled the monetary base since1 UK Pound was 1,50 Euro. So in the long run inflation will kick sterling down to 50 Euro cents.

2 - US dollar, because money printing has doubled the monetary base since the Euro was at parity, inflation will kick the dollar to 50 Euro cents and at parity with the Pound.

Both economies will not significantly under- or outperform the Euro zone and government debt will even add to the problems in both economies, while the Euro zone countries are already solving this issue. The Pound will go first (inflation is already a problem in the UK) because it is has no reserve currency status and markets will soon realise that UK's 'austerity' is a laugh. The Dollar will then gradually lose its reserve currency status to the Euro over a decade.

The chance of a Euro zone breakup is virtually nil, despite continuous prophecies in US and UK media that hope to be self-fulfilling.

And don't be fooled: no QE by the ECB, so no extravagant money printing in the Euro zone, just providing  liquidity that will automatically return to the ECB, unlike the actions of the BoE and the Fed that will inevitably lead to high inflation.

In 2021 England will finally join the Euro, 5 years after Scotland.[:D]

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I think that Jako's comments are just about right with the exception of the UK joining the Euro because its already burnt it bridges when the current government got in to power. A stupid mistake and something that make come back in the next 15 to 20 years to bit them on their bottom.

The problem with these 'stories' in the national and financial press and on their websites is that the 'experts' are mainly of American source or opinion and America has a vested interest in seeing the Euro fail as it starts to replace the Dollar as a world currency. They like the UK to 'tag along' with their stories because the UK is (loosly) part of Europe so it gives their stories some form of believability. America can't attack the 'core' of Europe directly so it nibbles away at the weaker member states like Spain, Portugal, Greece, Ireland etc. I have not been to Portugal but I do visit Spain as it's so close to me and the thing you notice is the cranes are moving again which indicates construction has restarted which is an indication things are improving. We also have friends in Barcelona working in the financial sector and they say things are getting much better now.

The other factor is you can't put Ireland in the same bracket as Greece which failed due to public spending. Ireland's problem is the huge amount of private debt, individuals who borrowed large amounts of money from banks etc and now can't afford to pay it back. In a way this is the fault of the EU because it gave Ireland a shed load of money years ago to rebuild it's infrastructure, new roads, railways, better airports, hospitals, schools etc. This gave the Irish loads of work, it also made it a good place for companies to set up and invest, Dell, HP and alike to name just a few. When the job was done you had loads of people who had no work, they had taken on loans for houses who's prices had gone up in leaps and bounds, new cars and lot more besides. With no work they can no longer afford to pay these loans back. One of the reasons the UK has lent them money is because some of the banks are owned by UK banks and the UK can't afford for them to fail. It's a shame that Ireland didn't do anything some time ago as these projects came to an end, it was rather like a train in a tunnel with a massive light on the front, they knew it was coming but like most politicians in the world they went in to denial and now they have to suffer the consequences.

The thing is we always compare the Euro against the dollar and the pound, the latter for obvious reasons if your a member of this forum. If you start looking at other currencies which I did a couple of months back it's surprising that whilst there have been some fluctuations it's nothing like those of the dollar or sterling.

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[quote user="Quillan"] with the exception of the UK joining the Euro [/quote]

You assume that the other EU countries will indefinitely allow the UK to profit from EU membership but not adopt the single currency . That is a mistake.  There is already a growing resistance in the other EU countries, especially France, against this UK exception .

As a EU member you either adopt the Euro or get out.

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Well sadly the UK will not adopt the Euro as everything to do with the UK doing so was 'deactivated' by the Tories when they came to power, I believe it was the first thing they did just to please the Euro Sceptics, a very bad move in my opinion and could cost the UK dear if they ever need to borrow serious money like Greece of Ireland.

Lets be honest a lot of people from Euroland have been saying for many years now, almost from it becoming a currency, that if the UK does not join then the UK should depart the EU. Morally I think that's right but personally and for my own selfish reason (it will make it difficult for us possibly to stay in France) I wouldn't like it to be thrown out or leave in general. For all the huffing and puffing of parties like UKIP there is more chance of the UK being thrown out than leaving of it's own accord. Of course the effect of being thrown out would be devastating for the UK.

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Theres as much chance of the UK being thrown out of the EU as there is for you to be handcuffed to a ghost. How would France and Germany find the money to replace the UK donation. In my opinion the UK will stay in the EU and the pound will remain our currency.

 

Quick edit, forget the ghost, there is more chance of Andy Grey getting a job with the BBC and compering the female of the year program.[:D]

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The problems is there is so much misinformation given out about what the UK pays and it's always the gross figure. The most common figure banded about is £40M per day (about £14.6bn a year, I didn't do the maths, just took their word for it) and it's the figure that UKIP for example likes to try and ram down peoples throats. What they never publish themselves is the amount of rebates the UK gets, that's in the form of things like European Regional Development Fund, European Social Fund and the like, the rebate currently runs at around £10bn a year which means in real terms the UK only pays around £4.6bn a year to the EU. That still sounds like a load of money but if you look how much and where we are spending money it starts to come in to perspective, Education £86bn, Health £109bn, Transport £23bn, Scotland £33bn (apart from booze what do we get from Scotland?), Overseas Aid £12.6bn and just to keep the balifs from the door we have to pay £46bn in interest payments on loans thats without paying off the capital.

So in answer to your question it's simple you simply divide £4.6bn between 25 members that are left, that's not a lot of money each.

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I would not dispute that the UK is between a rock and a hard place. Over reliance on a bent financial sector, a small manufacturing base, the biggest banking bust in the history of banking: the lowest interest rate in the history of the BoE and printing money shows just how desperate things are. Likewise, America is living on debt and is in decline. But it does not follow that Countries tied to the Euro are safe from what is presently happening in the world and are on the path to a Utopia. And Europe is not doing very well at all: only one of its members has what it takes to compete with the emerging powerhouse economy that is China and that is Germany.  Europes answer to the problems of bankrupt nations like Ireland, Greece, Portugal etc is more debt to pay debt they cannot repay already: only politicians and economists could dream up such a solution. It looks certain big changes are coming regardless of what new laws and regulations politicians create. Certainly interesting times.

 

 

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Of course Europe is not safe but with a lot less inflation than both the UK and the US and a far higher level of productivity than both combined it is certainly in a better place. As for the Euro well as I have said before the Chinese are far from stupid and at the moment for them The Euros seems to be the flavour. I also read the other day somewhere or perhaps I heard it on C4 News that quite a few of the Middles Eastern oil producers now prefer payment in Euros as they consider it a more stable currency than dollars. That really is whats going on, the fight between the Dollar and the Euro as a world currency and that's why nearly all the predictions that the Euro will not last come from the US but hey they have been saying this for over two years now and its still here strong as ever. It's all about 'talking down' the Euro by the US except not many believe them. Don't forget any 'gain' on the Dollar and Sterling is only a move towards where either were before, the Euro never got strong the others got weak.
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" I also read the other day somewhere or perhaps I heard it on C4 News that quite a few of the Middles Eastern oil producers now prefer payment in Euros as they consider it a more stable currency than dollars."

Good to have a really reliable substantiated storey Q. [Www]

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They were talking about a particular country and I can't remember which one as I was not really paying attention. However a few years ago OPEC decided that it would move from the dollar to the euro but not immediately as a whole entity but they did give members the individual choice of waiting or moving. They did this because they saw the benefits that Iraq reaped when they demanded payment in Euros and not dollars (you will have to google around for info on that). Iran is one such country.

OPEC may switch to euro although it's dated 2008 some countries have moved to the Euros (sorry can't turn the bold off)

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[quote user="Quillan"]I also read the other day somewhere or perhaps I heard it on C4 News that quite a few of the Middle Eastern oil producers now prefer payment in Euros as they consider it a more stable currency than dollars. [/quote]

If an oil producer would prefer to be paid in euros rather than dollars, all he has to do is quote the price for his oil in euros rather than dollars.  Are any of them doing that?

It doesn't look like it, because the price seems to be quoted only in dollars, even in European market reports.      

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The 'Market' currently quotes in dollars for oil, just like it does for gold. When you go to buy gold do you pay in dollars, off course not you pay in the local currency. Before you had to pay the oil producers in Dollars but now that the Eurozone is so big (it has more people living in it 526M than the US 307M) and is actually a more stable currency than the Dollar they don't mind being paid in Euro's. China is another beneficiary, it buys Euros from Europe, exchanges them at a very good rate in to dollars then lends the money to the US by buying US treasury bonds. They are currently the biggest owner of US treasury bonds. In fact if you follow the money all the way back it's actually Europe and the Euro who are indirectly bailing out the US with China ending up owning most of the US. Good for the Euro because Europe does not end up with high risk US treasury bonds, china does, so if the US finances goes really tits up the Euro won't have a massive bad debt to write off. Interestingly when you look at who owns how many US treasury bonds  ( HERE ) who is the third biggest owner which may explain why the UK is always groveling to the US and why sterling follows the rise and falls of the dollar. Its also interesting to see by comparison how much Germany and France has bought.
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[quote user="Devon"] And Europe is not doing very well at all: only one of its members has what it takes to compete with the emerging powerhouse economy that is China and that is Germany.[/quote]

That is what UK and US media write, but there are many other countries doing fine.

E.g. Netherlands: unemployment at 4.8% ,way below Germany and running hot. ( Europe's second biggest exporter...)

Finland is doing fine, so are Luxembourg and Austria. France is ok, unemployment was always high and they are now even rethinking the 35 our work week. Spain has the 2010 deficit down to 5%, that is the UK's goal for 2014! , UK's deficit  will again be above 10% this year. Belgium is lagging because of the political situation, Italy is not bad and better than the UK. Denmark is also doing fine and has kept his currency linked to the Euro, so they actually use Euro bill's with krone pictures. Sweden is also doing fine and has not manipulated its currency unlike the UK and US. Poland has even avoided recession. So what in Europe is doing not well at all? So far only Greece and the banking problems in Ireland, but the real economy in Ireland is not bad,  growth for this year is likely.

The problems in de US CINN states are much bigger than in the Europe's PIGGS. California alone is the worlds 5th economy and they are very, very broke. Worse than Greece, but Greece is a completely negligible economy on a world- or even European scale.

But US media conveniently point their attention to Europe and the UK media follow.

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[quote user="Jako"][quote user="Devon"] And Europe is not doing very well at all: only one of its members has what it takes to compete with the emerging powerhouse economy that is China and that is Germany.[/quote]

That is what UK and US media write, but there are many other countries doing fine.
E.g. Netherlands: unemployment at 4.8% ,way below Germany and running hot. ( Europe's second biggest exporter...)
Finland is doing fine, so are Luxembourg and Austria. France is ok, unemployment was always high and they are now even rethinking the 35 our work week. Spain has the 2010 deficit down to 5%, that is the UK's goal for 2014! , UK's deficit  will again be above 10% this year. Belgium is lagging because of the political situation, Italy is not bad and better than the UK. Denmark is also doing fine and has kept his currency linked to the Euro, so they actually use Euro bill's with krone pictures. Sweden is also doing fine and has not manipulated its currency unlike the UK and US. Poland has even avoided recession. So what in Europe is doing not well at all? So far only Greece and the banking problems in Ireland, but the real economy in Ireland is not bad,  growth for this year is likely.

The problems in de US CINN states are much bigger than in the Europe's PIGGS. California alone is the worlds 5th economy and they are very, very broke. Worse than Greece, but Greece is a completely negligible economy on a world- or even European scale.

But US media conveniently point their attention to Europe and the UK media follow.
[/quote]

Exactly, well said and precisely what I believe also and there is loads of stuff out there if you search that backs this up. The US and the UK should really concentrate on sorting their own mess out rather than spend time trying to make themselves look good against other countries when in reality they are actually worse off.

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[quote user="Jako"] Nothing can be said about the short term, but in the long term two currencies are under  threat :

Since UK Pound was 1,50 Euro. So in the long run inflation will kick sterling down to 50 Euro cents.[:D] [/quote]

So on the upside then If I sell at this point I'm likely to treble my investment?[:)]

[quote user="Jako"]  In 2021 England will finally join the Euro,  .[:D] [/quote]

At this point the Pound will be at parity? I can buy back and retain 30%ish?[:D]

 

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