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Euro could collapse in 'three to six months'

The Local · 1 Dec 2011, 14:18

Published: 01 Dec 2011 14:18 GMT+01:00

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Gustav Horn, director of the Macroeconomic Policy Institute (IMK) in Düsseldorf, told the business daily Handelsblatt on Thursday one possibility would be for the European Central Bank (ECB) to reduce interest rates for crisis-hit countries down to a more sustainable level.

But he also said the International Monetary Fund (IMF) could step in to help, although he admitted this would increase the influence of the US, Japan and China on European economic matters.

“I give the euro three to six months if nothing happens,” he told the paper.

The ECB action “could happen quickly and would, under current circumstances, not create any danger of inflation,” he said.

It would be preferable to intervention of the IMF, as that “would equate to an admission of the eurozone being unable to solve its own problems,” said Horn.

Other voices are also calling for the ECB to act, with Hans-Peter Grüner, a former advisor to the bank, telling the Handelsblatt an intervention now would save the ECB from having to take action in “secondary markets”.

“But I do not think the ECB should categorically rule out further interventions in secondary markets. Those who speculate against Italy will probably have to deal with the EFSF and the ECB,” he said.

He said the EFSF – the European Financial Stability Facility – rescue fund would be able to stop the debt crisis from spreading if it was leveraged further – and also called for the IMF to contribute to the fund.

Horn’s dramatic warning is not the most alarming – last week the weekly Economist magazine said in a comment piece that the currency could have just weeks left.

Story continues below…

“Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up with weeks,” it said.

The Local/hc

The Local (news@thelocal.de)

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Your comments about this article

20:52 December 1, 2011 by coffejohn
We in the UK have experience of this sort of problem. When we had to devalue we did so without notice and after denying the possibility.
21:07 December 1, 2011 by Logic Guy
Well, I find it quite puzzling, in that economists are making such profound predictions. Sure, the Euro would initially lose value, if some EU nations were to default. However, if such nations were to then immediately exit the EU, then with time, the Euro would actually increase in value, simply due to the fact that there would be fewer Euro dollars in circulation.
23:39 December 1, 2011 by Paul Spradbery
The Euro will collapse, possibly even before the end of 2011. Its creation was political and flew in the face of economic fundamentals. The UK learned a bitter lesson in 1992 when it was ejected from the Exchange Rate Mechanism of the European Monetary System. Prior to its de facto expulsion, interest rates were kept cripplingly (and inappropriately) high in order to maintain an untenable exchange rate. Only when the pound was allowed to find its natural level, by devaluation, did the UK's economic recovery begin. As it was then, so it will be for the stricken Eurozone economies. Then, once the short-term shock subsides, each of the affected nations will, by means of an independent currency and floating exchange rate, be able to determine its own future, free from the Euro straitjacket.
00:17 December 2, 2011 by _JD
The blow to the Euro from the explusion of a country would come from the fear of who might be expelled next - why buy Italian bonds when there's a safer choice. The Euro may indeed rise in exchange rate temporarily, but the damage to the Dutch and German export industries would be much more profound than the amount for bailing out Greece completely. This is why both the German and the Dutch heads of industry back European solidarity.

The Euro is not a straightjacket, but rather a part of a political project that has fostered peace and prosperity on the continent - a "guarantee for peace" as Kohl recently put it.

Those who reduce all of these issues to narrow economics - with no concern for broader historical and political realities - are fundamentalists of a different stripe, but probably more dangerous in the long run than religious ones.
08:07 December 2, 2011 by LancashireLad
I partly agree with what you are saying. Yes if the weaker countries leave the Euro, it will increase the export prices for the stronger ones, but backing Euro solidarity here is also not the way.

Germany should leave the Euro threfore allowing the Euro to stabilise downwards. Yes the Euro will devalue but the weaker countries can then price ther exports more competitively and therefore have a greater chance of economic recovery.

The Euro is a currency. The issues are economic. The Euro is a failed experiment in political engineering - I have never understood how the thing was intended to work and am now being proven right - in *that* sense it is true that the Euro is more than raw economics as you now have to take in account the different work ethics and therefore economic powers of the member states.
14:26 December 4, 2011 by storymann
LancashireLad, very true.
20:58 December 4, 2011 by JDee
Hitler also guaranteed peace between the united Germanic countries as did Stalin in the Soviet union. All that happens when you create such entities is the superstate ends up becoming undemocractic and wages war internally against the population. This is the path the EU has gone down. People have already died in Greece. Democracy has been subverted on a massive scale. Enough is enough.
14:59 December 5, 2011 by yhsanjay
The way things are moving, Euro collapse is no longer a myth.When the Euro was conceptualized, the individual currencies of each member nation should have been kept intact. Against each currency the Euro's value should have been fixed. The German Mark or the French Franc for instance should have had more weightage as these economies are strong.The Greek currency should have been kept intact and valued lower vis a vis the Euro, so also the Portuguese and Italian ones.The Euro could have been a common currency for trade and exchanged in lieu of each local member nation's currency on a need based basis.

But the pundits went ahead equating all currencies without testing the economic health of member nations.Now some members are in the ICU while others are in the best of health jogging!

No way, the Euro concept was short sighted and is bound to become history.
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