More Euro-twaddle from the Antis

The latest bout of problems for the Euro zone has been greeted by the latest bout of self congratulatory nonsense from the usual suspects: those people who think about the Euro with their guts, not their brains. The rescue of Portugal, and before that of Ireland, and before that of Greece has not come about because these countries use the Euro. The crisis for those countries, as for the UK itself, which does not use the Euro, is rooted in the fact that their governments (and many of their populations) spend more than they earn. They have structural deficits which are rapidly increasing their national debts.

It is true that low interest rates helped encourage both government and indeed personal borrowing, and it is possible that the higher rates that would have been needed to prevent a currency crisis should those countries have maintained independent currencies might have slowed the rise in debt.

That would only have mitigated the problem and would not not have prevented it, however. The issue is a structural one, not merely a financial one.

Now, we are told, the Euro is bound to fall apart because interest rates are rising in the Euro zone and "the Germans will not rescue the feckless PIIGS states". Well, it is certainly true that interest rates in the Eurozone are indeed starting to rise. They are and are likely to remain a fraction of what they would be for Greece or Ireland or Portugal, were they outside the Eurozone though. In other words, the motivation for these countries to stay within the Eurozone remains intense. Meanwhile the primary creditor to those countries is... Germany.

So, despite the certainty from the Antis that the Euro is bound to fall, there are a large number of reasons to suppose that it will not.

While the representative from UKIP interviewed on the BBC Today program last week was incredulous that Estonia has joined the single currency this year, the fact is that more countries have joined the Euro, and several others will also follow.

Of course we know that the management of government debt will need to be changed, and that this could involve "restructuring" (read: longer payment schedules or write downs). However that is increasingly in the market price of the various government bond markets- which is why rescues were deemed necessary in the short term.

Meanwhile the UK has seen the value of Sterling continue to FALL against the Euro. It was €1.166 = £1.00 on January 2nd; it is now €1.130, which is yet another three percent fall in the last three months.

When I was a graduate trainee at JP Morgan I was always told "Its in the price".

Yes it is, and that does not look good for Stirling (or for the Dollar, incidentally, which has weakened even faster.)

It does however underline that whatever the problems of the Eurozone are, the currency itself is in no immediate danger of collapse- whatever UKIP thinks. The research highlighting a notional 1 in 7 seven chance of a dissolution of the Euro, which was seized on by the Antis as proof of their case, only shows how innumerate they really are: that suggests an 86% chance of survival over the term of the forecast- that it is overwhelming likely that the Euro will not lose even a single member.

Hardly the certainty of doom that was being suggested.