L'Ombre de l'Olivier

The Shadow of the Olive Tree

being the maunderings of an Englishman on the Côte d'Azur

10 January 2009 Blog Home : January 2009 : Permalink

A Bold Prediction

I'm going to nail my trousers to mast on this one*

During 2009 a member of the Eurozone will seek to leave. I'm going to hedge my bets on which member and on whether they'll manage to pull it off during the year but I predict that one of them will start the process to quit.

Why? because there is a horrible disconnect between the ECB's policies - which are OK for the Northern Euro group - and the needs of the southern (and Irish) members of the group. The economy of Spain pretty much imploded last year. I reckon Italy is going to hit the buffers this year. I suspect that Greece, Portugal and Ireland are in equally poor state.

There is also, of course, the question of the small nations such as Cyprus, Maltas and Slovenia. The islands will probably remain in the Euro. Since they have to import pretty much everything and they rely on European tourism for a large chunk of their income they have no incentive to switch from the Euro, and the same goes for most of the micro countries (Monaco, San Marino etc.) although Andorra might see benefit in joining a Spanish currency. Slovenia is more complex. Slovenia has a real economy with manufacturing and so on. It might well see a benefit in remaining a member of the Euro since the Euro should provide potential investors with some reassurance but on the other hand leaving the Euro might well help it with its exports. Slovenia has (IIRC) the former Soviet Union countries as major trading partners and the Russian Ruble is definitely sinking compared to the Euro.

The Irish might seek to retie their currency to Sterling - after all right now €1≈£1 - I'm not sure what the other nations might do if they need to restore their currency but they could well go back to Psetas, Lire and so on without much trouble.

Finally, and not part of the prediction, there are various countries (e.g. Estonia, Bulgaria) that have their currency effectively fixed to the Euro. If the Euro continues to remain strong, it would not surprise me if these countries decided to either change the exchange rate or to float it.

*Anyone get the "Yes Minister" reference?