The euro as presently configured is doomed due to structural imbalances between mercantilist and consumer nations. A "euro1 and euro2" system would allow a face-saving demise to euroland's single currency.
I've got a bad feeling about the Euro: the structural imbalances I presented yesterday irrevocably doom the single currency.
Just to recap the cycle and its consequences, here is a chart:
The Mercantilist Nation - Consumer-Debt Nation Cycle (chart available on below link)
Since the euroland leaders have invested their prestige and credibility in the single currency euro, it's demise will likely be cloaked in some "face-saving" measure. My best guess is euro-denominated bonds, both public and private, will be offered in two flavors: "euro 1" for mercantilist Germany, France, the Netherlands, etc. and "euro 2" for the highly indebted, debt-and-asset-bubble-dependent consumer nations: Portugal, Ireland, Italy, Greece, Spain, etc.
This could be a de facto (unofficial) "solution" to repricing debt and assets in each nation, or it might even become "official policy" as the great structural divide between mercantilist and consumer nations become unbridgeable even rhetorically.
Eventually, the "euro 1" currency will be valued more highly than the "euro 2" currency--again, either de facto or de jure. If the E.U. prefers total denial as a policy, then the revaluation/devaluation will be de facto; the "street price" of euro 2s will be worth less in the real world even if the E.U. maintains the fantasy of a single currency.
State and supra-State institutions like the E.U. can afford the facades of illusion; the real world of commerce has to adapt to reality.
China has already decided on its de facto policy on dollar-denominated debt: it is selling longer-term T-bills and buying short-term Treasuries as a way to limit its long-term risk to rising interest rates; the short-term T-bills offer a liquid market to "park" its dollar-denominated earnings.
Full article at: http://www.oilprice.com/article-why-the ... euro2.html
