What’s happening to the EuroZone?

It’s Memorial Day weekend in the States . I always think of the men and women who’ve lost their lives in combat. I lost a lot of friends and neighbours in Vietnam. I was one of the lucky ones, in as much as I was (at the time) the only surviving male heir in my family. A sort of “Private Ryan” even before the movie came out. It’s also a Bank Holiday in the UK so trading will be slow leaving this month and entering June, Since I trade primarily the EUR/JPY I thought I’d look at some news that’s hitting the financial headlines this weekend. The article I found (below) came as quite a shock. I knew that Estonia was labelled to enter the EuroZone I also heard the rumour that France and Germany were quite possibly having talks about leaving the single currency because of the bail out offered to Greece. The shock part came with this bit of news where it states that British economists are advising Greece to not only default on it’s debt but to convert back to a domestic currency in order to minimise the impact on the percentage of GDP. But it doesn’t stop there. If Greece does what is advised then other countries are likely to follow suit, among them Spain, Portugal and Italy. This is the “extent of contagion” the article mentions. And, looking at more headlines for example…

 Spain Races To Avert Banking Crisis As Euro Faces Slide – UK Times

May 30 (IFR) – The UK Sunday Times is reporting that Caja Madrid, Spain’s
second-largest savings bank was this weekend negotiating a merger with five
smaller rivals as part of a desperate government effort to restore confidence in
the faltering economy…

 leads me to believe there’s a lot more to come. It’s been long said that the single currency started off too fast, too big and too soon before any appropriate “testing” was done on it. This, imho, makes the last “sentence” become dramatically clear.

CEBR urges Greece to leave the Euro & default on Debt – UK Times

May 30 (IFR) – The UK Sunday Times is reporting that the Greek government has
been advised by British economists CEBR to leave the euro and default on its 300
BLN EUR debt to save its economy.
The Centre for Economics and Business Research (CEBR), a London-based
consultancy, has warned Greek ministers they will be unable to escape their debt
trap without devaluing their own currency to boost exports. The only way this
can happen is if Greece returns to its own currency.
Speaking from Athens Saturday, Doug McWilliams, chief executive of the
CEBR, said: “Leaving the euro would mean the new currency will fall by a minimum
of 15%. But as the national debt is valued in euros, this would raise the debt
from its current level of 120% of GDP to 140% overnight. McWilliams added: “So
part of the package of leaving the euro must be to convert the debt into the new
domestic currency unilaterally.”
According to the Times report, McWilliams called the move “virtually
inevitable” and said other members may follow. “The only question is the
timing,” he said. “The other issue is the extent of contagion. Spain would
probably be forced to follow suit, and probably Portugal and Italy, though the
Italian debt position is less serious. McWilliams added: “Could this be the last
weekend of the single currency? Quite possibly, yes.”

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