10 June 2010

Euro-trash

Heading South maybe an apt description of the Euro-having taken Erin’s problems in its stride the Mediterranean crisis now seem to have derailed the single currency as Greece's debt woes have highlighted the inherent weaknesses in European Monetary Union with critics saying Europe's institutions were too slow to respond to the growing debt crisis.

Nobel laureate economist Joseph Stiglitz, a long time advocate of the single currency, now believes its future is in doubt, according to citywire’s Deborah Hyde who recently quoted the former adviser to Bill Clinton and one-time chief economist at the World Bank as having told the BBC 'the future of the euro may be limited' if there are no major institutional reforms, adding that the spending cuts being pushed on Athens could end up harming the Greek economy.

‘If you cut budgets too excessively the economy gets weaker, tax revenues go down and the improvement in the fiscal position of the country is much less that one would have hoped,’ Ms Hyde also quotes Marc Touati, analyst at Global Equities, as saying that the euro-zone leaders have to take responsibility for the current lack of confidence in the currency and that they have to move fast if they don't want the dream to end. ‘They must act fast with a cut in interest rates to 0.5%; the euro will then fall towards $1.20. Then the euro zone could profit from the rebound in global growth while limiting imports,' he said.

Like Stiglitz, Touati believes the euro-zone will only be saved if there is far-reaching reform-'Otherwise the euro could disappear over the next few years,'

Leading strategist Andrew Garthwaite at Credit Suisse also believes the authorities have no more time to waste and the euro will be hit-that the ECB will have to do more to prop up the peripheral European nations while America's central bank will be doing the opposite, leading to a further 12% fall in the euro versus the dollar.