As the crisis in Europe deepens, there is much speculation as to the future of the Euro – will it survive? What will happen to Greece? What about Spain and Italy? There are few good options, but there are options.
First, I can’t help but state again that the US is NOT like Greece. Just yesterday I heard a popular conservative talk show host explaining that the US is going broke and we are the next Greece. This is complete nonsense. The difference between Greece and the United States is that Greece is a currency user, the U.S. – a currency issuer – trust me, it’s a huge difference.
The first solution to the Euro mess is for certain countries to go back to being currency issuers, in other words Greece (and many of the others) leave the Euro and go back to their old currencies…then devalue.
This solution has its merits, but is ugly and could cause massive financial collapse. There are many pro’s and con’s to this strategy of which I will not get into now, but it’s the option on the table currently (if only as a bargaining chip).
The second and most likely (not to mention simple) solution is for the central bank (the ECB)
to support the faltering countries via cash injections. This is a political and treaty problem, but also the only solution that prevents a meltdown.
Eurobonds and tighter fiscal and political integration. Germany is dead set against this (but does desire the political control of neighboring countries). Eurobonds are like US Treasury Bonds, but issued and guaranteed by the whole of the EMU (European Monetary Union).
If things haven’t melted down by mid-June, I’ll write more….but for now I’m going back to studying for the CFA exam.