Dumping The Euro

Ever stopped to think why Germany, France and the other Eurozone countries are so keen for Greece to accept the imposed austerity cuts that will enable the release of further bailout funds?

There has been much debate recently, and again over the weekend, that the Eurozone should ‘just let Greece default’, or alternatively ‘Greece should just leave the Euro’.

After all how hard can it be? A bit of printing of new currency, some re-labeling of prices and re-programming of systems. They certainly wouldn’t have to worry about promoting or marketing the forthcoming change would they!

Living in Spain I have been asked many a time if I think Spain will or should leave the Euro, and to date my answer has always been that I don’t think they will, nor do I think they should, and if asked about Greece I would say the same!

Note, please, that I am talking about remaining within the Eurozone, not remaining with the EU, which I think is a totally different debate and one I am engaged in elsewhere!

My reasoning is pretty simple really: cash is all about confidence. If you have cash in your pocket you feel confident, if you don’t then you don’t. If you have cash coming in at the end of the week/month you feel confident, if you don’t then you don’t. If you know how much that cash is worth & what it will buy you then you feel confident, if you don’t …… you get the picture.

In many ways that was the whole point of the Euro and the Eurozone, to provide increased confidence in cash, to provide a collective confidence through belonging to a more stable community, with the stronger nurturing and protecting the weaker.

Consider for moment that Greece left the Eurozone. Regardless of whether they ‘jumped or were pushed’ one thing is certain: the change wouldn’t happen overnight. Three to six months I reckon between announcement and implementation and while I am sure all kinds of mechanics would kick in to protect the risk of fraud, possibly including an interim currency or a specially marked Euro, what mechanisms would be in place for people’s confidence.

It is pretty safe to assume that to date there have been some ‘mini’ runs on the banks as those with cash in Greece look to house it elsewhere, with the main question not being should I do it, but where should I put it (is no coincidence I suspect that many an Expat has been transferring their savings into $’s recently) and more importantly will I be able to as governments look to seal their borders against large cash transactions to avoid an unsurvivable devaluation.

Then we get the risk of contagion. Greece today, who tomorrow? Spain, Ireland, Portugal, Italy. If you lived in any of those countries and heard that Greece had left the Euro your confidence in your own cash in your own country would be dented.

Sure governments would look to ‘firewall’ the political and financial implications of this mood swing, but public mood can be a mighty powerful tool as we have seen this last six months with the riots and public demonstrations of dissatisfaction across the globe.

All things considered Greece seems better off remaining in the Eurozone during this current crisis.

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