Chart of the Day: Euro probability

Today’s chart effectively sums up the Euro crisis in a fairly easy to understand flowchart and comes from Pictet’s Christophe Donay (via ZeroHedge):

Although it doesn’t provide a probable timeline, the chart is illustrative, if a little optimistic in my opinion of the weighted probabilities. A fiscal union – the logical choice, but a cultural and geo-political backward step – is probably less than 10% given the aversion of the non-Germanic States fear of a centralised, German-dominated Europe.

Or as Nigel Farage (reluctant UK member of the European Parliament) put it recently (VIDEO):

“We are now living in a German dominated Europe. Something the European project was actually supposed to stop.”

The full presentation of their 2012 Investment Strategy is available and to say the least, has some interesting observations and conclusions. Timely given the breakdown of risk markets overnight.

www.twitter.com/ThePrinceMB

Latest posts by Chris Becker (see all)

Comments

  1. 25% chance of fiscal union?…impossible
    35% chance that nothing changes, but the ECB monetizes some debt….this is the status quo, amped-up….completely unsustainable: impossible

    of the other three…reversion to national currencies is the most likely…

    • I’d bet my house on the 35% option “the Euro remains the Euro” at least in the short term. Sure its unsustainable, but they will choose this option for as long as they possibly can.

  2. Why would a fiscal union be a cultural and geo-political backward step?.

    I think a fiscal union between some of the member states is quite likely, but not between all of them.

    • It’s more of a forward step and Europe wants to be united geopolitically to give shelter from its surrounds.
      However, these nations still remember WW2. Independence is not taken for granted. It is greatly valued. It will take a lot of thought to give it up even partially. They will certainly give it thought, but don’t count on it happening. What is lost is hard to get back.

    • The EU is not the USA, even though the latter has significant cultural differences within, they have a common heritage and share similar values and are republican (not capital R, in the structural sense)

      The best way for Europe to move forward is as separate entities (I would go as far as city-states, but thats the 15th century me coming out again), as this competition AND recognition that the cultural, philosophical, and institutional differences between the EU nations is the strength.

      Diluting into one amorphous blob ruled from Brussels is not the way to go. Fine, have a fiscal union between states with shared values (Benelux combined with Germany?)

      Concentration is proving a higher risk for the EU than diversification and recognition that Spain ain’t Germany which ain’t the UK with ain’t Italy.

      • I think it’s more likely that Belgium will dissolve with the Flemish going to the Netherlands, the Walloons merging with France and Brussels becoming an EU city state.

      • [email protected]

        Agreed +100.Federation of EZ is not on.
        However some fiscal synchronisation along side the Euro is on.
        And lastly and selfishly please do not morph the EZ into a homogenised lump.
        That is both boring and criminal. Respect for all peoples and nations for mine.

      • Something I’ve been struggling to understand is the general trend for the number of countries to increase (split of Czechoslovakia, Sudan, USSR, Yugoslavia etc), whilst on the other hand (certainly in the European case) there is a desire from an economic standpoint to be more “one”, ie join the EU. So culturally people are saying “We’re different”, but economically they’re saying “We’re the same”. It just doesn’t jive with me (and yes, I speak jive).

        Does anyone have any ideas on this? Maybe more suited to one of RS’s weekend posts…

        • It’s a view that cultural differences are significant enough that sovereignty is desirable, but a recognition that no country works alone in the globalised economy – the issue is that recognising similar economic desires isn’t the same as acheiving similar fiscal and monetary objectives.

      • Most of the people in USA today either arrived as immigrants or are the descendants of immigrants, so the common heritage is somewhat debatable. However, I do take your point that most US citizens count themselves as American first and foremost.

        I can quite easily envisage an EU that is something like a combination of the EU we see today and the USA. In this model many of the laws governing taxation, social security, the environment, the military etc would all be shared. However, the member states would still retain their identity and would be something like US states but with much more power (i.e. less central control and more local control).

        I am not sure if I agree with your argument that only some states share values. It has been my experience that almost all humans share the same values, they just have different ways of expressing them. Again, I can see your point, but I think you may be placing too much emphasis on this.

        It is in Europe’s best interest to be more united, but at the same time to maintain their local identities.
        “Spain ain’t Germany which ain’t the UK which ain’t Italy.” This is true, but there are also large groups of people in each of those countries that have more in common with each other, than they do with other groups within their own country.
        Under a more united system it would not be one country ruling all of the others (which is what most fear), but rater the dominant ideas that emerge across all countries dominating.

        • ““Spain ain’t Germany which ain’t the UK which ain’t Italy.” This is true, but there are also large groups of people in each of those countries that have more in common with each other, than they do with other groups within their own country.”

          They said the same thing about the Kingdom of the Serbs, Croats and Slovenes (Yugoslavia). Look at how that experiment turned out.

      • “….The best way for Europe to move forward is as separate entities (I would go as far as city-states, but thats the 15th century me coming out again)…”

        Channeling your inner Machiavelli, Prince?

  3. How are the markets so calm after Spain has asked for help to fund itself? The game is up. There is a shrinking number of countries providing these bailouts. I’m guessing the markets have priced in ECB printing. That would be a disaster though. Short-term markets should not have any bearing on long-term decisions which such terrible consequences.

    Although in a funny way, making decisions based on market movements is a kind of global democracy isn’t it? 😛

    • The bond market is the one to watch, not deluded equities. 10 year debt at 7% for Italy and Spain, with German yields actually declining is a clear sign the euro experiment is over, that the deutschmark will rise again and the 30 year party, funded by cheap credit, is about end.

      • Yes I watch the bond markets all the time.. too much I’d say. You can clearly see when the ECB is stepping in, only to watch yields recover to higher levels. It angers me though, that the markets want us to spiral into printing-induced stagflation destroying everything just to rally a bit longer. It’s like dealing with a spoiled ADHD child. Please Germany! Resist!

        • Do you think the Germans would willingly throw themselves under the bus to save the French, when it would all be for naught anyway? Let alone the PIIGS?

          This is the question one must ask.

          • I wonder where we would be if the ECB hadn’t bought the $200 bn it already has. And where will we be, when this “temporary and limited” programme comes to an end?

  4. “I wonder where we would be if the ECB hadn’t bought the $200 bn it already has. And where will we be, when this “temporary and limited” programme comes to an end?”

    We would have just be facing the same systemic issues, only just a few weeks or months earlier.

    Naturally the situation has so vastly improved as a result of this government intrusion that it was well worth it /sarc

  5. I tend to think that fiscal union will be seen by most as code for extending rather than diminishing German sovereignty.

    Comparisons with the US are very instructive. Even though the North American colonies fought a revolutionary war together to oust the British and had a strong sense of their shared nationhood and destiny, nevertheless they fought a long and extremely bloody civil war to create the Federation as it now recognized.

    The chances that the disparate peoples of Europe will cede their national democratic rights to Brussels or Strasbourg are very very remote. Even if economic circumstances were far more favourable than they presently are, it is almost inconceivable this could happen. For one thing, the European Union is already split between those economies that are in the Euro and those that are not. It is just unimaginable that the British, for example, might approve the creation of a fiscal union which would necessarily require some derogation of their political sovereignty and which might involve giving up their own currency in favour of the Euro and a banking system that is clearly in constant jeopardy of collapse.

    Merkel is tacitly saying the status quo is unsustainable. Well, that is not news. What she needs to do is formulate a program that is both relevant to the problems and capable of being implemented.