Guild Investment Management
In our opinion, global stock markets are beginning to price in a breakup of the euro zone. In the next few years, the zone is bound to lose some of its 17 direct member-nations and 5 small users who use the euro but are not part of the European Union.
Some will quit under pressure or be forced out and possibly some will quit because they do not want to pay part of the bill to bail out less conservative, more spending oriented sister states.
We anticipate that Greece will be the first to leave the euro zone. The Greeks are perceived to be thumbing their nose at their European neighbors, and the euro community could use Greece as an object lesson for other countries who might consider the role of non-cooperation.
Ireland is being complimented for its cooperation, and for beginning to put their fiscal house in order. For Portugal, Belgium, Spain, Italy, and possibly three Eastern European countries, the jury is still out.
While a mechanism to remove those countries who fail to comply with the fiscal demands of their European neighbors and the International Monetary Fund (IMF) is in the works, another option has also been proposed.
In the next 5 or 10 years big changes may be afoot in Europe. Proof of that emerged in a November 18th article by Bruno Waterfield, a writer for The Telelegraph in the United Kingdom. The article makes visible a leaked memo written by the German Foreign Office. To quote from the article, “The six-page German foreign ministry paper sets out plans for the creation of a European Monetary Fund with a transfer of sovereignty away from member states.”
In addition, “The fund will have the power to take ailing countries into receivership and run their economies. Even more controversially, the document, entitled ‘The Future of the EU’: required integration policy improvements for the creation for a Stability Union’ declares that the treaty changes are a first stage in which the EU will develop into a political union. The debate on the way towards a political union must begin as soon as the course toward stability union is charted.”
