Tags: UBS | Euro | Survive | Demise | Chaos

UBS: Euro Can't Survive, Demise to Spark Chaos

Wednesday, 07 Sep 2011 12:39 PM

The euro cannot exist in its current state, and with its demise authoritarianism and possibly civil war could consume parts of Europe, global financial giant UBS writes in a report.

"Under the current structure and with the current membership, the euro does not work. Either the current structure will have to change, or the current membership will have to change," UBS says in the report, according to Zero Hedge.

The currency has been embattled by debt crises in peripheral countries like Greece and Italy and threatens to spread, while healthier countries are debating on how to rescue those in trouble and preserve the monetary union.
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Nobody wants to see the currency block fail, but should it go under, things could be ugly.

"Were a stronger country such as Germany to leave the euro, the consequences would include corporate default, recapitalization of the banking system and collapse of international trade," UBS says.

To quantify such a nightmarish scenario, UBS offers the following numbers:

"If Germany were to leave, we believe the cost to be around 6,000 euros to 8,000 euros ($8,441 to $11,256) for every German adult and child in the first year, and a range of 3,500 euros to 4,500 euros per person per year thereafter. That is the equivalent of 20 percent to 25 percent of GDP in the first year."

In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over 1,000 euros per person, in a single hit, the bank adds.

It could get even worse.

"It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war."

While UBS says there is no evidence of such a doomsday scenario on the horizon, it does point out it out that "monetary union breakup is not something that can be treated as a casual issues of exchange rate policy," MarketWatch adds separately.

Steps to aid the eurozone countries include the creation of stability funds as well as European Central Bank purchases in bond markets of troubled counties.

Yet for Germany, structural improvements to the continent's underlying economies are needed to prevent future crises.

merkelgetyty200.jpg
Angela Merkel
(Getty Images photo)
"I'm convinced that this crisis, if a great crisis of the Western world is to be avoided, cannot be fought with a 'carry on' attitude. We need a fundamental rethink," says German Chancellor Angela Merkel, according to Reuters.

"We must make it very clear to people that the current problem, namely of excessive debt built up over decades, cannot be solved in one blow, with things like euro bonds or debt restructurings that will suddenly make everything OK. No, this will be a long, hard path, but one that is right for the future of Europe."

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The euro cannot exist in its current state, and with its demise authoritarianism and possibly civil war could consume parts of Europe, global financial giant UBS writes in a report. Under the current structure and with the current membership, the euro does not work....
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