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Let
us start off by saying that we do not see the Euro collapsing and being
shelved, at least not yet, anyway. No exit process was written into their
rules anyway. But it is technically possible, so better to be forewarned.
What would prompt such a collapse? The future of the Euro lies in the hands
of its members, especially Germany - the richest and strongest member of the
Eurozone. It would be because the leading member [Germany]) felt it to be in
their national interest(s) to let it fall. There would be absolutely no
philanthropy in the process should anybody exit or if the Euro
disappeared. Principally, would Germany, et al, gain more by leaving the
Eurozone than staying in it? It may be more in their interests to have the
poorer nations ejected from the Eurozone to keep the big benefits and to lose
the problems. Then they would hold onto the Euro. But what would any of these
possibilities result in? [Subscribers will receive the last paragraph on the
impact on gold]
Full Collapse
Simply put, the
Eurozone would revert to what it was before the Euro existed. The European
Central Bank would have to return all of its gold to the member States in
proportion to their initial contributions. Their old currencies would have to
be resurrected and Euro reserves converted back to the mix passed to the
European Central banks from the beginning of the Eurozone.
Dollar & [or
if by then the Yuan was internationalized] Yuan reserves would be built up
again to replace the lost Euro reserves. The world's Foreign Exchange Markets
would be in chaos. Confidence in most if not all currencies would almost
disappear. By extension the ripple effect through the economies of the world
and business in general, would be destructive. There would be a huge scramble
for all hard assets, but particularly precious metals. Briefly the U.S.
Dollar would reign as king.
Partial collapse
More likely the
Eurozone will shrink first. The poorer Southern countries of the E.U.
would be cast out of the Eurozone and would have to revert to their previous
currencies. Spain would return to the Peseta, Greece to the Drachma, etc.
 The
example of Argentina un-pegging from the U.S. Dollar should be seen as the
precedent for this process. The wealthy of Argentina found their capital
hammered when it was forcefully converted from the U.S. Dollar to the Peso in
that process too. So the lifting of deposits, which is happening now, from
the banks in Greece, Portugal and now Spain, was only to be expected. If they
had their own currencies, either the fall in the value of those currencies
would deter that capital flight, or the imposition of Exchange Controls would
block it.
In the case of
Europe, we would also expect to see Exchange Controls imposed immediately all
countries that leave the Eurozone did so. This would prevent the capital
hemorrhaging from the country that left the Eurozone in disgrace. The
exchange rate of the exiting countries would initially fall heavily then take
a long time to recover, if they managed to recover economically at all. By
leaving the zone, these countries, would ensure they would suffer at least
one, if not more, decades of growing poverty, much as is expected to happen
with them remaining inside the Eurozone.
With the richer
nations remaining in the Euro, the exchange rate of the Euro would soar at
first, hammering its global trade competitiveness but attracting the world's
capital. It would jump against all currencies, but most decisively against
the U.S. Dollar, as its indebtedness would fall and prospects would improve.
If Germany leaves the Eurozone
 It is
possible in one scene to see Germany recognizing no further advantage of
remaining in the E.U. and opting to leave. This is unlikely, but technically
possible. If it were to do so, there would be few really strong economies
left behind, in the zone. This would be a disaster for the Euro, which would
tumble against the U.S. Dollar. If the poor countries of the Southern part of
the Eurozone remained in the E.U., then the Euro would remain on an ever
deteriorating slope.
Germany would return
to the Deutschmark and follow a similar currency path that it experienced
prior to the creation of the Euro. This would mean repeated upward
revaluations, usually preceded by denials of such revaluations from the
Bundesbank.
In that event,
the U.S. Dollar would be favored as the global reserve currency almost
exclusively and would rise on foreign exchanges, despite so many reasons why
it should fall. It would in fact be falling but slower than other important
currencies, giving the impression of strength in weakness. This is until the
full international appearance of the Yuan.
Globally
Resource
producing currencies would soar. In an attempt to lower their exchange rates
they would turn to lowering their interest rates in the hope of maintaining
the export competitiveness of their locally manufactured goods. With
resources having an international market price, outside their own currency,
such nations would drive down their exchange rates, provided local inflation
allowed it [As China is doing now and as was suggested by the I.M.F.
recently].
The overall
result would be a volatile and damaging use of currencies as part of trade
wars. Should that happen, Protectionism and Exchange Controls would become
commonplace, particularly in smaller economies.
 As China
grows in international importance over the next decade, we believe that the
Yuan would quickly become of equal importance to the U.S. Dollar and move
into center stage as a global reserve currency. This would accompany pricing
of goods [imports] in Yuan and exports from China in the currency of each
importer's currencies. We believe China is very aware of this and has made
plans for the Yuan to internationalize.
With Foreign
Exchanges becoming increasingly volatile, confidence mercurial and
uncertainty hanging over both the present and the future, assets,
particularly internationally-mobile assets, such as precious metals would be
increasingly sought after as a counter to all currencies.
Julian
D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
Is your
wealth effectively structured to avoid the pernicious effects of the
regulatory climate that we have moved into? It should be and we can help you
to do so professionally and within the law. Please contact us for any help
regarding this at: gold-authenticmoney@iafrica.com.
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