Why the Euro will never work - Part I

Hi everybody,

the following article is an extract of a conversation conducted with a CPA serving high profile clients, my stuff is in red:

"It has long been my view that the Euro-crisis is going to trigger great social unrest if they try to hold the EU together.  It simply doesn't work numerically.  As each nation fails it increases the financial burden on the remaining nations to the point where even France fails and then France's failure is enough to cause Germany's failure.  (Germany's cost to bailout Spain alone is 17% of Germany's GDP). Is this your view also? "

Only concerning EURO-currency nations:

I think you are correct about the numbers. However, I do see a much bigger cause behind the numbers: Culture. The Germans, Dutch, Austrians, Swiss, Flanders (Dutch part of Belgium) have traditionally been savers, hard-currency defenders and are rather afraid of high inflation, especially Germany.

On the other hand, you have countries like France and Italy, which are huge Industrial powers (Italy in the north, which is oven completely overlooked, France is the 5^th Industrial nation in the world), but have traditionally used devaluation against their main trading partners in the north (Germany etc.) to remain competitive and done so rather well up to the start of the EURO.

Simple point: Cars: Before the EURO came, you hardly saw BMWs, AUDIs, MERCs, even Range Rovers in huge cuantities in northern Italy or France. They where simply to expensive, even for the well off and you where watched unpatriotic not to drive something “from home”.

Look at the streets of Paris, Milan, Torino, etc. now: All german, financed by low (German) EURO interest rates.

Simple point: It’s killing France’s and northern Italy’s industry, not only cars, but practically everything.

Spain, Portugal, …. Greece: Totally different case in my opinion, which is why I object the term “PIGS” cause it only characterizes different countries from a London Bankers’ point of view called “fiscal responsibility” without taking a look at the industry (which is not a big surprise by the way, since the UK is heavily de-industrialized).

Spain has never had a competitive national industry, so has never had Portugal and even worse Greece.

Greece came to a point in 2007 when they did not produce anything anymore, heck even the lemons (those to eat, not to drive) where imported from Argentina ;-)

Resume: This whole thing is never going to work, the sooner they end it, the better. The Germans are particularly frustrated, but I actually believe who wants out hardest are the French, since it is killing their industrial base, quite the opposite is the case in Germany.