Dec 14, 2011

Has the Euro Become Radioactive?

More and more countries are distancing themselves from the Euro. First were non-Eurozone EU members like Poland pushing off the already agreed-upon adoption. Then Greece was toying with the idea of re-introducing the drachma, and now a politician in Iceland is suggesting that they should scrap their application for joining the Euro and opt for the Canadian dollar instead (read CNBC article here).

It is more of a psychological process than a purely financial one. Eur/Usd is only down 13% from the high of just under 1.50 reached on the day before the ECB failed to raise rates again in early May (what were we thinking??). However the more the crisis drags on, the more psychological capital the common currency loses. Companies are considering contingency plans for pricing their products; central banks are dusting off the printing presses for legacy currencies; brokers and banks are conducting "war games" to make sure they can quote and settle should those currencies come back. With every passing day it appears that the Euro is unlikely to survive in its present form.

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