Wednesday, December 01, 2010

Did Trichet blink or con the markets once again?

Bloomberg asks the first part of the question in this post's headline, linked here. The second part is my alternative view.

What the markets fail to understand, and what to me also makes the first question pointless, is that the ECB chief has no cards left to play. Only Germany and Germans can take over the debts of the Euro and relaunch it as DM2 with all economic control over the other 26 ex-nations of the EU then falling into German hands. Do those calling for virtually any measures to save the common euro currency really wish this outcome?

The disintegration of the Euro Currency, would however be comparatively simple, though of course not painless, as is discussed in the Analysis linked here. The following is some excerpts with some of the main points:

The disparities between the eurozone economies stretch from budget deficits to economic fundamentals and from current account surplus/deficits to unemployment....

With parts of the union drifting in diverging directions, the future of the bloc is not all that rosy indeed. 

Though for most policy makers the break-up of the currency union has been an unthinkable eventuality, there are more people now talking about the elephant in the room.

Analysts have pointed out that the legal barriers, political aftermaths and the economic repercussions of a break-up, or an opting out of the union, are not insurmountable.



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