GLOOM DEEPENS AS PROFESSIONALS AGREE: EUROZONE FACES FISCAL MELTDOWN


President Rompuy explains the problem


The Pound may have fallen against the Euro this week, but the Tsunami of sovereign deficit faced by the EU will produce cataclysmic results. The UK will be a mere disaster area by comparison: so in the medium term, taking a position in Sterling would be no bad thing.

The Daily Mail today reported (with fairly flimsy back-up)that Hedge Fund dawn-raider George Soros and other HFs ‘have been placing huge bets on the currency’s decline, which could make the speculators hundreds of millions of pounds.’ But for once, it’s no good blaming the Hedgies: they’re merely backing a potential winner(the Mark) against what they see as the ultimate loser – the EU’s Mickey Mouse currency.

The real crisis from now on will not be one of budgets, but of Union. Three years ago, The Slog’s mother-site nby asserted ‘by 2015, the EU as we know it will not exist’. Thursday last, a senior currency trading source told us:

“The deficit crisis is destabilising the political union. Tensions are at top-treble between the careful nations like Germany, and their southern neighbours.”

Old enmities have been quick to surface. In a series of astonishing outbursts, Greek ministers dragged up memories of everything from Nazi occupation to German reunification this week. And German tabloids have been railing against ‘lazy free-spending Mediterraneans’.

In turn, accusations have been flying that Greece conned its way into the Eurozone by using currency swaps during 2001. In fact, the only thing uniting European nations at the minute is a hatred of the role played by Goldman Sachs in the Greek crisis.

But the most significant trend is towards a virtual unanimity among currency traders and top credit managers that the Greek deficit crisis will spread. This is less a form of virus, and more the function of Euro fiscal controls that have been lax since the outset. Lest we forget, France has failed to meet Euro public finance standards since the Euro launched in 2000. A senior credit expert told us on Friday afternoon, “The sight of EU finance ministers dicking around over one country’s problems has to be worrying. Soon it’ll be three and then four. This is the sort of thing that terrifies the markets”.

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