What about the Euro Crisis?

The Euro crisis begs the fundamental question for Europe: is Euro good for them at all?

Back in May when Greece was eventually being bailed out, I had a sense that traders’ sentiments were almost betting on the break-up of Euro, as if they were not going to stop selling or shorting Euro until it broke up. Of course, when Greece was finally bailed out and when European Central Bank ended up buying bonds, people’s sentiments changed extremely dramatically. One analyst claimed that this was QE, and no one can stop money flooding. Of course, over the next few months, the sentiments surrounding second round of quantitative easing from the Fed further fuelled the sentiments, and most people could scarcely remember the Euro crisis until recently.

Now although Ireland is taking €85bn bailout, and Germany and France are pushing forward the permanent mechanism to prevent future crises, the market is apparently not pleased, giving up earlier gains, and Euro continues to be under pressure. Investors are of course very quick to ask “Who’s next”, and Spain and Portugal become the next targets, with bond yields rising and stocks falling. Will the kind of “end of Euro” bets return to the market in the lazy December? It would be interesting to watch, even though I am, just like many investors, rather lazy in December.

Instead of “end of Euro” sort of solution, which is not really a solution, there is a rather radical and unlikely proposal. Wolfgang Münchau at Financial Times suggests that Europe can probably turn all government debts, new and outstanding, into a common European Treasury Bond, so you will have a European Treasury. Of course this is a radical approach which even the author himself acknowledged that it will not ever be realise, although I think this proposal makes good economic sense. Of course, making good economic sense is one thing, sorting out the politics will be next to impossible.

If you reflect back, the possible future Europe facing ranges between a break up of Euro on one end of and the further unification of European economic system like on the other end. Now Europe is in the middle of the two ends. As they are all using Euro now, a break-up will be unthinkable. If anyone were to push for further unification, sorting out of the politics of these will be next to impossible, just as Wolfgang Münchau himself acknowledged. Perhaps Europe will have to get stuck in the middle just like they are in, trying all sorts of manoeuvre to save one country after another, which is not a pleasant situation either.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.