Alex Borzak
A couple of days ago Willem Buiter, Chief Economist of Citigroup Inc., introduced a new notion – “rublezonefication”. According the Western mass media (Bloomberg, The Guardian, The Financial Times, The New York Times, Forbes etc), the respected economist used this notion to describe the future of the eurozone.
According to Willem Buiter, the ECB may initiate the collapse of the eurozone by allowing the union’s national central banks to expand their balance sheets at varying interest rates. This was the mistake made by the USSR’s central bank before the collapse of the so-called “ruble zone”.
The thing is that not so long ago the ECB provided the national banks of France, Italy, Spain , Austria, Portugal , Ireland and Cyprus with the abovementioned freedoms. Despite the temporary nature of these steps taken by the ECB, Mr. Buiter assumes that the eurozone members may eventually go back to their national currencies.
Is the eurozone really in trouble?
Monetary Unions Always Evolve
A monetary (currency) union is not a unique thing in the history of the humankind. If to go back in time, different territorial unions (no matter if they were created as the result of some agreements of annexionist wars) sooner or later demanded for economic and currency unity. Monetary unions existed thousands of years ago. But all of them were temporary for a historical standpoint. Just recollect, the currency union between Ireland and the UK, the “rubble zone” of the USSR, the single currency of Yugoslavia, not to mention the single currencies of multiple empires.
Is Everything Rotten In The State Of Euro?
No experts, including , doubt that the eurozone is evolving.
The EU authorities admit that they made a bunch of mistakes when creating the eurozone. For example, there is no procedure of leaving the currency union (neither a forced withdrawal, nor a voluntary one). The eurozone members were initially granted with excessive financial freedoms, with no major watchdog to exercise control over them, including their budgetary spending and public debts.
Now the politicians are ready to make changes to the basic EU and eurozone agreements, up to delegating some of the sovereignty to the pan-European authorities.
Despite the fact that some European politicians want Greece out of the eurozone, Germany and France, the most influential members of the currency union, are determined to preserve its integrity. The financial support of the debt-ridden eurozone members is of pragmatic nature. Indeed, the disintegration of the eurozone will be rather costly. It will be the collapse of Europe. The strongest eurozone economies will lose 25% of their GDP while the weakest economies will shrink by 50%!
Of course, there won’t be any armed conflicts (as it was seen after the disintegration of the USSR or Yugoslavia) if the eurozone does disintegrate. However, in this case there will be some major social and economic shocks.
According to the analytic team of Nord FX (TOP of ’s rating of Forex brokers ), even if the current analysis of the situation shows gloomy prospects for the eurozone, the currency union is still viable. There is so much to lose, including 60 years of integrity efforts.
EURUSD: Outlook
On Feb 15th 2012 EURUSD confirmed the bearish reversal of wave level H4. According to the SRP Department of , if the price breaks below 1,3032, the modest retracement may turn into a full-grown downswing of wave level M15.
Market Leader and would appreciate if you could participate in a survey. Please, visit the Academy’s forum for traders and investors and answer the following question:
Will the eurozone eventually survive?
Alex Borzak
