Beginning of the End for the Euro?

There’s been lots of coverage on the Greek financial crisis for different reasons. Some fear that Greece is the tip of the iceberg and that other countries in Europe would go down next and prolong the recession. They are derogatorily referred to as the PIGS (Portugal, Ireland, Greece and Spain). Is that an appropriate acronym or what?

Others fear that this would be the beginning of the end of the Euro currency. After all, Greece’s irresponsible loan taking spree ended up forcing a stronger economy (Germany) to bail it out to save the common currency (Euro). Wouldn’t that make the stronger countries like France and Germany long for the days of the Mark and the Franc? After all, in the pre-Euro days, their currency could not be dragged through the mud by the actions of other countries. Nor would they be forced to save other irresponsible countries.

And finally, the British and Americans were gloating. Britain could adopt the I-told-you-so attitude and preen as to how smart they were to have not joined the Euro. And for the Americans, it meant that the confidence in an alternative to the dollar had reduced. America could continue to be the sole printer of the only major global currency. The Chinese wouldn’t like it; but what other currency could they hold? What other currency could the Iranians and the Venezuelans accept for their oil instead of the dollar?

Now it seems that the Greeks were able to get into the Euro in the first place only by exploiting a clause that the Europeans added to allow Italy a backdoor entry to join the Euro! Turns out Greece took some help from one of Wall Street’s biggest investment banks to exploit this clause. Who used one of Wall Street’s by now notorious derivative instruments to well, cook Greece’s books. If Greece does end up triggering the sequence that takes down the Euro, then Warren Buffett would be proven right yet again: derivatives are the ultimate financial weapons of mass destruction.

Is the Euro a good idea? Yes, it is. It reduces costs while travelling and doing business across Europe. It has the potential to create an alternative to the almighty dollar (well, ok, maybe not as strong as before but still quite strong). And thus constrain America’s ability to print at will and make it behave a bit more responsibly. But to do that, the Euro first needed to be the currency of all the major European economies. And for that purpose, the backdoor clause was created for Italy. But once the backdoor was open, the Greeks squeezed in as well. And now possibly threaten the very existence of the Euro. The road to hell is indeed paved with good intentions.

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