Weekend reading-things that make you go “hmmm”

Another great weekend reading by Things that make you go “hmmm”.

This week’s anniversary of the tragic sinking of Big Fitz got me thinking about the Euro – another behemoth currently navigating some extremely choppy waters but managing to keep herself above water. Holding her own, if you will.

The odds have been stacked heavily against the common currency for some time now and yet, despite a clearly unsustainable level of debt, several countries who should never have been allowed through the doors of the Eurozone, rapidly slowing growth and a group of basket-case politicians who have redefined the meaning of ineptitude, if you had shorted the Euro on January 7th of this year, you would now be staring at a loss of roughly 6% on your investment (chart, below).

To have sat and read the headlines these past 10 months and yet to be losing money on a short Euro position would have doubtless sent even the most stoic of investors in search of a stiff drink or some heavy counselling – but that’s the way these things go sometimes. Things stay afloat against all the odds – until, suddenly, they don’t.

One can’t help but think, however, that this week may well have brought us to the wall at the end of the road down which Europe has been kicking the can for quite some time now.

With the long-expected demise last week of the Papandreou government and now the swift fall of Silvio Berlusconi’s administration in Italy, events in Europe picked up speed as they move rapidly towards the kind of definitive end that we have needed for some time now, but that the prevaricating of the various bureaucrats in Brussels and beyond have denied us.

The smoke has pretty much cleared now and those in charge of the SS Europe are left with a stark choice – print money or allow the break-up of the Eurozone and the end of the common currency known as the Euro. At this point it really IS that simple.

The impediment to a EuroTARP or QEU program remains Germany . That’s pretty much it. Sure, the Dutch and the Finns and even the Austrians all pay lip service to a hard line on monetary easing, but, as one-by-one the formerly ‘strong’ countries get dragged into the maelstrom of the peripherals leaving a new country exposed on the outer fringes of the ‘core’, it becomes more and more obvious that somehow, some way, Germany has to find a way of justifying an action that is anathema to the citizens of Europe’s powerhouse economy. The blowout in the spread between Austrian and German 10yr bonds this week highlights that perfectly (chart, left).

Full Hmmm November 13 report.