Is the euro doomed?
A Greek default does not necessarily spell the end of the euro, but most believe the eurozone is unlikely to survive in its current form.
Is the euro doomed? The increasing consensus seems to be that in the wake of the sovereign debt crisis that continues to unfold across Europe, the euro will survive, but not in its current form. Some members like Greece and Portugal, for example, may leave the economic and monetary union.
As the ratings of some European sovereigns are downgraded to junk status the implications for European banks that hold sovereign debt on their balance sheets, remains unclear. Investors will no doubt be hoping that the EBA stress tests will tell them a little more about which banks are heavily exposed and will need to recapitalise. French and German banks are believed to be the most exposed to Greek and Portuguese sovereign debt, although Bank of England governor, Mervyn King, has warned of the implications for UK banks if they are not honest with investors about their balance sheet exposure to European sovereigns.
Corporate treasury professionals are also less than optimistic about the chances for the eurozone's survival in its current form. According to a survey of more than 600 treasurers conducted by EuroFinance, 36% indicated there is a 40% chance that one or more countries will exit the eurozone, with those outside the eurozone (47%) were even less optimistic. Only 10% "strongly agree" that the eurozone will survive in its current form in the next five years. The eurozone's survival will be a topic of debate at the forthcoming EuroFinance Treasury and Cash Management Conference in Rome.
Eurozone finance ministers and the ECB could perhaps do with a healthy dose of realism. So far their efforts have been focused on bailing out countries, to prevent a default by Greece or other countries in the eurozone, but now there seems to be gradual acknowledgement that a Greek default does not necessarily spell the end of the euro. However, ECB president, Jean-Claude Trichet remains opposed to roping in private bondholders to shoulder some of the bail out responsibilities.
Date Posted:13th July 2011