Friday, February 12, 2010

Societe Generale: Euro Zone Headed For Break-Up

Societe Generale SA strategist Albert Edwards says that the overvalued Euro is suffocating Southern European countries by low competitiveness. This situation will lead to the break-up of the euro bloc.

The report by Bloomberg says that the problem for countries including Portugal, Spain and Greece is that years of inappropriately low interest rates resulted in overheating and rapid inflation.

Year of Deflation Needed

Edwards says that "even if governments could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable break-up of the euro zone.”

We may want to reconsider all that recent talk about unity and not allowing Greece to default.

That unity talk surfaced again today. Tommasso Padoa-Schioppa, a former European Central Bank executive board member and Italian finance minister, "said today there was no possibility of a partition of the euro-zone". “I don’t think there is any prospect for such an event and I don’t think it makes much sense to talk about it,”.

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