Why 2017 Could See the Collapse of the Euro – Stiglitz

Stark and Stiglitz are too of many respected commentators, from both the so called right and the so called left, who are warning that the common currency and the Eurozone itself will not survive the financial and political turmoil already besetting the European monetary union and set to deepen in the coming months and years.

According to Stiglitz:

Greece remains in a severe depression. Growth for the Eurozone over the past year has been an anemic 1.6%, and that number is twice the average growth rate from 2005 to 2015. Historians are already speaking of the Eurozone’s lost decade, and it’s possible they’ll soon be writing about its last decade, too.

The euro was introduced in 2002, but the cracks in the single currency arrangement, which began in 1999, became evident with the 2008 global financial crisis.

Gold in EUR

Gold in Euros – 5 Years - Click to enlarge

The recovery is unsustainable as the root cause of the crisis – humongous levels of debt in Greece, Spain, Italy, Portugal and Ireland – was not dealt with rather the debt can was simply kicked down the road.

France, a nation with its own debt and economic issues, warned last week that the “window of opportunity” for a debt deal is closing after Athens and its creditors failed to find a solution to the country’s deadlocked bailout last week. French Finance Minister Michel Sapin warned that the coming volatile elections in Europe in 2017 would soon dominate the agenda and may make it much harder for Greece to reach a new ‘bailout’ deal.

Jeroen Dijsselbloem who heads the Eurozone’s Finance ministers also said: “there is a clear understanding that a quick finalization of the second [bailout] review is in everyone’s interest” as reported by the Wall Street Journal.

However, others such as Stark believe that eurozone “must break up if its members are to thrive again.”

Stark, who served on the ECB’s executive board during the financial crisis, said it was time to “think the unthinkable” and work towards a “reset” of Europe that pulled power away from Brussels as reported by the Telegraph.

This “would help to ensure the smaller bloc’s survival.”

Stiglitz conclusion, in a little noticed or commented upon article in Fortune magazine is also not optimistic and underlines the importance of being properly diversified and not having all your eggs in the euro basket – be that euro bank deposits in Eurozone banks or indeed euro denominated assets.

Stiglitz concludes by warning that:

…  It is at least as likely that the political forces are going in the other direction, and if that is the case, it may be only a matter of time before Europe looks back on the euro as an interesting, well-intentioned experiment that failed—at great cost to the citizens of Europe and their democracies.

The full article can be read on Fortune here

Whether we like it or not, there is an increasing possibility that there may be a return to national currencies in Europe. Periphery nations savers and investors are particularly exposed in this regard.

Gold is an important hedging instrument and financial insurance that will protect people from the potential return to liras, drachmas, escudos, pesetas and punts. Hoping for the best but diversifying and being prepared for less benign financial outcomes remains prudent.