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Investing and Economics Blog

Is the Euro Going to Survive in the Long Run?

To me, the prospects of a Euro currency surviving over the long term were not helped this week. The markets have behaved as though some great solutions have been adopted but it seems to me the fundamental problems if anything are worse now. It is true the short term is more stable. But at what cost?

Bailout Is ‘Nail in the Coffin’ for Euro, Rogers Says

The 16-nation currency weakened for a second day against the dollar after rallying as much as 2.7 percent on May 10, when the governments of the 16 euro nations agreed to make loans of as much as 750 billion euros ($962 billion) available to countries under attack from speculators and the European Central Bank pledged to intervene in government securities markets.

“I was stunned,” Rogers, chairman of Rogers Holdings, said in a Bloomberg Television interview in Singapore. “This means that they’ve given up on the euro, they don’t particularly care if they have a sound currency, you have all these countries spending money they don’t have and it’s now going to continue.”
…
“It’s a political currency and nobody is minding the economics behind the necessities to have a strong currency,” Rogers said. “I’m afraid it’s going to dissolve. They’re throwing more money at the problem and it’s going to make things worse down the road.”

This makes sense to me. The problems with the Euro also explain why the dollar hasn’t fallen more over the last few years. The only significant alternative is the Yen. The BRIC countries (Brazil, Russia, India and China) are looking to increase the profile of their currencies supposedly – or even forming their version of the Euro (I can’t see how that could happen).

Greece’s budget deficit of 13.6 percent of gross domestic product is the second-highest in the euro zone after Ireland’s 14.3 percent. As part of the bailout plan, Spain and Portugal also pledged deeper deficit reductions than previously planned.
…
[Rogers suggests] Investors should instead buy precious metals including gold or currencies of countries that have large natural resources, Rogers said. Among other asset classes, he favors agricultural commodities as the best bet for the next decade as well as silver because prices haven’t rallied.

It is very difficult for the politicians in the USA, United Kingdom and other countries to behave fiscally responsible when their taxpayers will eventually have to pay the bill. When you can hope to have others bail you out it seems that much less likely people will behave responsibly. Then again I was skeptical the Euro would be created without first having more consolidation of European governments. There are lots of good things about having the Euro, but in the long run there are very challenging issues to deal with.

Related: Jim Rogers on the Financial Market Mess – Why the Dollar is Falling – A Bull on China

May 12th, 2010 John Hunter | 4 Comments | Tags: Economics, economy, Financial Literacy, Investing

Comments

4 Comments so far

  1. fritz on August 11, 2011 9:31 am

    59% of the people in gemany want the “DM” back france is the same. Why is the goverment always selling his own citizen short we did go to school and earnd our degree. The same is true for the USA our goverment does not care for its citizens they only care for them selfs and calling us stupid even our persident down talks to us why. it does not matter if we Vote or not our Vote means nothing to our goverment.

  2. Strong Singapore Dollar | Expat in Singapore on August 30, 2011 3:08 am

    From 1999 to 2011 the Singapore Dollar (SGD) is up 37% v. the US Dollar. And just since January 1st of 2009 it is up 19%…

  3. Singapore’s Strong GDP Growth Prompts Rise in Singapore Dollar | Singapore on May 14, 2012 4:02 am

    […] Strong Singapore Dollar – Which Currency is the Least Bad? – Is the Euro Going to Survive in the Long Run? – USA Dollar Decline Due to Government Debt or Total Debt? This entry was posted in economy […]

  4. Which Currency is the Least Bad? at Curious Cat Investing and Economics Blog on August 18, 2012 11:43 pm

    The safest play I think is the US dollar (as lousy as it is on an absolute basis the options make it look almost good). It could get clobbered. But that seems less likely than the others getting clobbered…

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