Tags: eurozone | Countries | Default

Currency Expert: One Or More Eurozone Countries Must Default

Tuesday, 27 Dec 2011 08:13 AM

Currency analyst Scott Boyd says the only way out for the eurozone is to “reset” its debt by forcing at lest one of its troubled member countries into default.

"This approach also makes it possible to redirect the bailout fund money to the bondholders, thereby softening the blow to the financial system," Boyd writes in The Christian Science Monitor.

“Forcing the default of one or more Eurozone countries is a drastic move, but it is necessary to safeguard the remaining members,” Boyd says.
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"Under the current approach, even the strongest economies will eventually be bled dry as investor confidence deteriorates and bailout costs rise."

Boyd believes that, until the debt is addressed, the EU is simply throwing good money after bad.

"The reason is that even if EU leaders seem unaware of the debt, markets are not," he says. "And markets are forcing indebted nations to pay ever higher amounts of interest to service that debt."

“European leaders continue to miss the mark in their assessment of the root cause of the continuing crisis. To paraphrase Bill Clinton: It's the debt, stupid.”

Boyd point out that the plan of action European officials positioned as the salvation of the euro consisted of an agreement to draft a revised treaty giving central European Union authorities greater control over how sovereign nations manage their budgets.

The participants also agreed that EU central banks would lend another 200 billion euros ($262 billion) to the International Monetary Fund. This money would then be used by the IMF as part of the European Stability Mechanism to support the handful of countries struggling to remain solvent.

“The first measure is unlikely to ever be ratified as an EU treaty in the face of British opposition,” says Boyd. “And the alternative fiscal compact that the other EU members are now trying to create is proving legally tricky, even before it runs a gauntlet of political challenges.”

“This leaves the 200 billion euro loan to the IMF as the only probable legacy of the summit meeting. Unfortunately, it's not enough to address the issue.”

Bloomberg reports that the Hungarian forint weakened as Hungary’s prime minister rejected European Union conditions attached to an aid package.

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Currency analyst Scott Boyd says the only way out for the eurozone is to reset its debt by forcing at lest one of its troubled member countries into default. This approach also makes it possible to redirect the bailout fund money to the bondholders, thereby softening...
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2011-13-27
 

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