A few years ago it wasn't really the thing in mainstream media circles to mention the inherent instability of the euro. And it most certainly wasn't the thing to mention that its inherent instability might lead, in the end, to its collapse.
But by the beginning of last year, as the spreads between the sovereign debt of the likes of Greece and Spain and that of Germany widened, that changed. Greece was occasionally mentioned as a potential problem for ongoing unity although always with the aside that any country leaving the zone was, as John Authers of the FT put it in January 2009, "close to an unthinkable event." It isn't unthinkable any more: for the last few weeks the business pages and blogs have been full of almost nothing else.
But however much the market might have liked the drama, it looks like Greece isn't going to be the one to break ranks this year. And why would it? Imagine if it chucked in its membership and issued its own new currency. You might think that a good thing. Not having a depreciating currency has long been seen to be a big part of Greece's problem. But the nasty truth is that it wouldn't really help much.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Why? Because Greece's debt would stay denominated in euros (shifting it into the new currency would be an effective default). So the more the drachma II fell, the bigger the debt burden would become. Currency-risk-averse investors would also demand an ever-greater premium to buy any new debt. It would be miserable.
Issuing a new currency would also cause an immediate run on all the banks (who would want it?) and make no difference whatsoever to the core problems of the untaxed black economy and rigidity of the public sector.
But imagine if it wasn't Greece that left the euro, but Germany. The deutschemark II wouldn't fall. It would rise, making any euro debt easier to dispose of and making any euro-priced assets the Germans happen to fancy even cheaper to buy than they already are. It might also make Germany's patient tax payers (who have muddled along with no big wage rises and no feel-good house price bubble of their own for years now) happier than the alternative a great deal of money spent bailing out the eurozone's more free-spending members.
In the 1990s, says Ambrose Evans Pritchard in the Telegraph, German citizens were given a pledge by their leaders that the loss of the D-mark would not "lead to monetary disorder or leave them liable for Club Med debt." Given that Greece has a public debt now heading for 140% of GDP by 2012, it looks as though that pledge will be very hard to stick to.
Indeed, along with the rest of the eurozone, Germany has just promised to provide "determined and co-ordinated action if needed to safeguard stability" in Greece. It's enough to make you wonder if this time next year a new German currency will have moved from being completely unmentionable to merely being "an almost unthinkable event."
-
Barclays warns of significant rise in social media investment scamsInvestment scam victims are losing an average £14k, with 61% of those falling for one over social media. Here's how to spot one and keep your money safe
-
Over a thousand savings accounts now offer inflation-busting rates – how long will they stick around?The rate of UK inflation slowed again in March, boosting the opportunity for savers to earn real returns on cash in the bank. But you will need to act fast to secure the best deals.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
