Thursday, April 29, 2010

Must Split the Euro Into Two Classes - Europe at Tipping Point

Sudeep Singh in an interview with Bloomberg has a very good point. He is a hedge fund manager with extensive experience in trading currencies in emerging markets.

The issue is that European countries in trouble are severely limited because they cannot resort to the usual alternatives: use cheaper currencies (devalue the currency) or use high inflation to drop the value of debts.

Says Singh: "An alternative to the euro is needed to let Greece and other European nations devalue their way to financial health"


He adds that the Euro should be split into two classes. He proposes calling the new currency the “sestertii” (Roman coin once used across southern Europe).

“You have to view this crisis through an emerging-market prism, where we’ve seen this movie before,”

“In every other emerging-market crisis there’s been a currency devaluation, a debt restructuring and tighter new fiscal policy. Greece and the others can’t become competitive without a cheaper currency.”

“Ask yourself the Rip Van Winkle question of what you would want to own before you went to sleep for 20 years,”

“Would you rather have Brazilian 20-year bonds denominated in real or Portuguese 20-year bonds denominated in euro?”

High Odds

“There’s probably a 30 percent likelihood now, but that’s rising every minute,” “Europe is far closer to a tipping point than the world realizes.”

Please see our post on current straddles on the Euro, gold, oil and stocks.

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