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Any time a major bank releases a report saying a given course of action is too costly, too prohibitive, too blonde, or simply too impossible, it is nearly guaranteed that that is precisely the course of action about to be undertaken. Which is why all non-euro skeptics are advised to shield their eyes and look away from the just released report by UBS (of surging 3 Month USD Libor rate fame) titled "Euro Break Up - The Consequences." UBS conveniently sets up the straw man as follows: "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change." So far so good. Yet where it gets scary is when UBS quantifies the actual opportunity cost to one or more countries leaving the Euro. Notably Germany. "Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. " It also would mean the end of UBS, but we digress. Where it gets even more scary is when UBS, like many other banks to come, succumbs to the Mutual Assured Destruction trope made so popular by ole' Hank Paulson : "The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war." So you see: save the euro for the children, so we can avoid all out war (and UBS can continue to exist). The scariest thing, however, by far, is that for this report to have been issued, it means that Germany is now actively considering dumping the euro.
The only way to hedge against a Euro break-up scenario is to own no Euro assets at all.
Originally posted by wondera
On the Australian ABC morning program an Euro bank representive
was being questioned weather he'd like to see a United States of Europ
He said No to the question but he added he'd like to see somthing simmular
as in co-ordinated finacial legislation through out the Euro Zone.
I only partialy cought this but i think it's interesting. a consolidation
of european power through the one enterty, good news or bad i don't know
BBC: Juergen Stark in surprise resignation from ECB
Juergen Stark's resignation is regarded as a blow for the ECB, say analysts
MSN: ECB economist calls for drastic reforms
European Central Bank chief economist Juergen Stark called for drastic reforms to strengthen economic governance of the eurozone, hours after resigning abruptly on Friday.
A "quantum leap" is necessary "at the European level" to reinforce its institutions, Stark wrote in a commentary, excerpts of which were released by the German daily, Handelsblatt, ahead of its publication on Monday.
"A large reform of decision-making mechanisms and sanctions" is necessary in order to secure in the future effective coordination of economic and fiscal policies of the eurozone countries, he added.