Friday, June 08, 2012

The euro perspectives: A Matter of cost

The alternatives for the Euro zone debt countries, has been progressively narrowing to the evaluation of two cost: a.- The cost of keeping the membership in the Euro club (I) b.- The cost of walking away from the Euro Club (II) The lower any of these costs ,decide whether it is better to stay in or to stay out. So far, it seems obvious that the second kind of cost, has been higher than the first one. Thus, there has not been a clear and explicit intention of leaving the euro zone .This the case of the smaller countries, which do not have the capabilities to deal on its own with the consequences of breaking apart from a framework which even with its weakness has been useful to improve the chance of collapsing and panic.- But what about those countries which do have the capabilities to deal on its own, with the consequences of leaving the Euro. Besides , these countries might have the resources to master the immediate effect on the financial sector and expectation, of a decision of such magnitude. With no clear policies to maintain the membership ,other than to adhere to strict rules few countries can afford, the euro at this point is no longer what it was expected to mean: A mean to get together the diversity. Instead it has become a burden for the recovery following the impact of the financial crisis of 2008, specially in the case of smaller countries of the euro zone. What comes next?: a.- It is unfeasibly the massive implementation of the Eurobonds. At most it might follow a selective approach. b.- Those bigger size countries of the Euro zone, still in trouble because of the heavy adjustment under way to keep the membership ,might decide to leave the Euro as soon as the cost (I) is higher than cost (II).- c.- Given the current probably scenario of breaking the euro apart, it is more feasible the implementation of the two speed euro zone. Thus , even within the euro framework and its rules, there would be the chance to allow those countries capable ot moving at a lower speeed, to works in some areas (specially the trade sector one) , with its own currency at an euro exchange rate , given by the European Central Bank.- d.- The austerity approach , is not longer a substitute for growth. The German engine running, is a guarantee to go further beyond austerity.-