End of the EURO? what effects would be if it happens?

I would be better for Irish without the  Euro? Greece’s economy afloat should return with a new drachma? Has been much discussion about the possibility that problems in the euro area economies to leave monetary union, but how a country could do so has been less explored. Thus, as we develop the scenarios, it becomes increasingly clear that the dismantling of the euro area are increasingly present.

If a country from euro area intends to introduce a new currency, then you have to convert their savings into the European single currency at a fixed exchange rate, since a certain date.

But businesses and people will not wait passively for the time to come.

The main reason why a country would want to abandon the euro  its the intention to increase export competitiveness through exchange rate depreciation of the new currency.

Accordingly, investors and savers decide to keep their funds in euros or other safe currencies such as dollar.

The big problem is that with the launch of the euro is possible abandonment of news that the banking sector will collapse as investors will withdraw massive amounts of money.

Certainly, the government would try to limit these transfers, but the control mechanisms are not very effective in the current global economy.

Naturally, the question arises whether training in secret and surprising release may be a viable scenario.

Such a plan could work only in a totalitarian state, where the decisions are not subject to public debate and parliamentary comiisilor not pass through the filter.

Risky Measure

Economy of European countries leaving the monetary union would face great difficulties because of public debt in euro. Government will continue to pay these debts in euros while income from fees and taxes will be the new currency.

An alternative may be to convert the new currency debts, but such a move would mean national bankruptcy.

Investors will lose confidence and will ask for the punitive interest to continue to buy government treasury bills in question.

The main argument is that optimists make is that other currency conversions have been successful. Introduction of the euro, or convert East German marks in German marks are examples that could validate the dismantling of monetary union.

United difrent is that in these situations considered more volatile currencies were converted into currencies that investors perceived as safe.

Such an argument suggests that the transformation of a weaker currency in one strong should be viable. In this case a country like Germany could leave, theoretically, the euro area. But monetary union in Europe was built to be “unbreakable”, and whatever the theoretical attractions to disrupt the euro area, the practical difficulties of such a plan can not be ignored.

Belgium surprise appearance on the list of problems

Traders pushed up the cost of insuring against default of Belgium’s debt to record levels because of the political system problems. Belgium has joined as Portugal, Spain and Italy on the list of countries could move towards a financial crisis, writes The Guardian.

In bars and cafes in Bruges Antwerp, people are talking less about Christmas, but about the increasing cost of financing the country’s national debt, which reached 100% of GDP.

Like Ireland, struggling to stem the criticism launched against the austerity package announced, there are signs that international bond investors start to regard Belgium as living on borrowed time and borrowed money.

Worsening situation, the country has a political system has problems and a government in April. Traders on international money markets have led Belgium to the cost of insuring debt to record levels. Interest required by investors to buy securities Belgian is still at the level of charges for Spanish titles, but analysts say the gap is diminishing rapidly.

“Belgium is obliged to pay a political risk premium because it still lacks a government that makes decisions about how to reduce spending and debt, decision desired by the markets,” said one analyst.

While the rest of the continent has struggled to find answers to the question that must be reduced and when as part of efforts to keep government spending under control, the ten million Belgians have been caught in a three-year conflict between Flemish and Walloons on the government district on the outskirts of Brussels.

In April, the government of Prime Minister Yves Leterme collapsed when he could not solve what had become a constitutional crisis center having electoral arrondissement of Brussels-Hal-Vilvorde. June elections have divided the country. Most Flemings want a dose of austerity in the British style, but socialists refuse any spending cuts.

In the tense atmosphere created in the financial markets, any country without a coherent plan can be seen as irresponsible or something to hide. Briefly, following Ireland.

A government spokesman denied that Belgium would face problems, saying the country’s debt has a very different character from that of the British debt.

“Our Government is forced to refinance debt in the same way that Britain, which has lent more to the international level,” he said.

He admitted that the political situation is not resolved, however, that Belgium is looking stable. “It’s an unfortunate fact that we have to wait to establish a new government, but it is a democratic process and the situation will be resolved in time.”

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Posted by M Cosmin on Nov 29 2010. Filed under Featured News, Finance. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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