Today's Coming Crisis Movie

Thursday, May 31, 2012

The Euro Is Already 'Kaput'

To the naked eye, the euro is still alive. From a financial perspective, on the other hand, it is already pretty much kaput.

In just the same way as the currency union was preceded by an invisible rise in financial integration across the euro area, its demise is already being prefigured by financial disintegration throughout the eurozone.

Up until relatively recently, the banks and investors responsible for the financial plumbing throughout Europe would tend to treat euros as euros. So, if you lent money to a Greek business it was entirely sensible to balance that out with a deposit from Germany or France. There really was a single market for finance – and this was one of the most important component parts of the monetary area.

What’s happening at present – silently but swiftly – is that banks have realised that some euros are more equal than others. A German euro is not a Greek euro, and so on. Not only have they started to carry out “war games” to work out how their balance sheet would be affected if, suddenly, all those Greek assets were redenominated in drachmas, and were thus worth only half their previous value, they are also taking action.

Banks from around the world are attempting to ensure that any assets they have in Greece are matched against liabilities in Greece. The same goes for all of the embattled periphery countries, and even for other euro members. Read More