Who Would Want to Hold Euros in Europe?

We had lunch with hedge fund manager, John Prout – and others. We were invited to join a small group of largely paleo-conservatives in the foothills of the Blue Ridge mountains. They were an interesting bunch. Whether they were suffering from a kind of nostalgic weltschmerz…or just kvetching about the lost Republic…we weren’t sure. But they were gracious, entertaining and charming; what more can you ask for?

Besides, Rappahannock County, Virginia, must be one of the prettiest places in the nation. Small country roads snake around big farms…with picturesque barns, lazy cattle, and stately mansions. The tall fescue was ready to mow…as the humid air of early summer sank into the copses and green hollows.

It was a delightful place for a meeting…or “gencon” (general conversation), as our host called it. And a comfortable place to talk about the broken continent.

John had analyzed the euro crisis and come to a startling conclusion.

If Greece tried to leave the euro, he believed, it would cause a god awful mess. There is just no way for a country to hobble out of the euro without getting its cane knocked out from under it…and then being trampled by currency speculators, bank depositors and angry mobs. A cripple will die before he reaches the exit.

Unlike Argentina, which could seal its financial borders, and rob its own people blind, the whole point of the European project is that the borders are open. And the more the Greeks try to keep money in their country, the more people with money are eager to leave. As soon as they let it be known that they are leaving the euro, the retreat will be like the French heading south after Dunkirk. Money and people would leak out of every mountain gap and river crossing….

…and the rest would start smashing windows and setting German cars on fire.

And then, what about Spain? Portugal? Italy? And even France? Who would want to hold euros in Europe?

The solution to this problem will have to be a radical one…or none at all.

John’s big wonder…as reported on CNN:

Could Germany save eurozone by leaving it?

Editor’s note: Clyde Prestowitz writes on globalization for ForeignPolicy.com and is president of the Economic Strategy Institute. John Prout is the former Paris-based treasurer of Credit Commercial de France.

By Clyde Prestowitz and John Prout, Special to CNN

With Greece probably heading for an exit from the euro, the European and global economies may be facing disaster. However, there is still time for European leaders to reverse this destructive dynamic with one simple, outside-the-box solution: Instead of pushing Greece out of the eurozone, Germany should voluntarily withdraw and reissue its beloved deutsche mark.

The analysis of the problems of the euro and the European Union has long been upside down, focused on the debt and competitive weaknesses of the so-called peripheral countries (Greece, Italy, Spain, Portugal and Ireland) and especially of Greece. But issues of debt and competitiveness existed and were dealt with rather easily long before the euro arrived, through periodic devaluation of the currencies of the less-competitive countries against those of the more competitive countries, and especially against the deutsche mark.

If Greece or Spain leave, it will be a disaster for everyone, says John. If Germany leaves, it will merely be a surprise. No riots. No revolutions. No currency debacles. The deutschemark will go up. The euro will go down. Problem solved.


Bill Bonner,
for Markets and Money

From the Archives…

When Capital Comes A Knocking
2012-06-01 – Greg Canavan

When the Pain From Spain Moves Across the Plain
2012-05-31 – Greg Canavan

Greek Game Theory: Default, Devaluation, Austerity, Deliverance?
2012-05-30 – Nick Hubble

Desperate Stock Market Traders Waiting To Be Made Whole
2012-05-29 – Murray Dawes

Greek Elections: The Fear of Uncertainty
2012-04-28 – Dan Denning

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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And France would be in big trouble.
So, perhaps Germany and France should leave.
Then, do that, and the rest would struggle to stand together. Imbalances would still exist, just be smaller. Give it another 20 years and they will have grown to crisis levels again as Capitalism defines the strongest prosper as the weaker falter.

It’s easy picking solutions out of the air, much harder to rationalise and think them through.


In relation to Euros in Europe, Seeking Alpha just released and article about the recent 100Billion Euros that left Spain in the first 3 months of the year. Figured you guys would want to take a look: http://bit.ly/K9tjeR – as expected, the party line is ‘more centralization please!’

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