Whither the Euro? Seeking Resolutions for the Eurozone
A year is a long time in a stressed currency union. Last October, we conducted a poll of CFA Institute members based in Europe about the future of the eurozone. At that time, 70% of respondents agreed that a failure of the euro would be a failure for Europe. However, 63% believed that a breakup was unlikely. And even amongst those who thought otherwise, only 36% expected it to break up in less than a year. It turned out that the majority was right. So far.
Not surprisingly, a major theme of this year’s CFA Institute European Investment Conference in Prague was the prospect for the euro. Most speakers opined on the subject, sharing and supporting their various arguments.
Anatole Kaletsky, co-chair of GaveKal, laid out the necessary conditions for the long-term survival of the euro: political, fiscal, and monetary federalism. He stated that nothing less would safeguard the common currency and deemed central control of tax and spending, joint responsibility for debt and banking, and central bank support for federal debt essential to underpinning the unit. He added that in the near term, the European Central Bank‘s (ECB’s) “safety net” would save the euro, and there may be a continuation of the crisis, but a breakup would be unlikely.
