A summary of this week’s news on Euro currency

The euro crisis has returned to haunt politicians and economists this week with Greece potentially facing bankruptcy, Spain getting closer to a bailout, and Germany risking its top credit rating. 

With prolonged economic weakness and spillover for the currency bloc, Greece will, with 90% chance as predicted by the Citigroup Inc., leave the euro zone in the next 12 to 18 months.  Read the detailed news in this link: http://www.bloomberg.com/news/2012-07-25/citigroup-sees-90-chance-that-greece-leaves-euro.html

Ifo Institute for Economic Research has estimated that if Greece become insolvent and quits the euro zone, Germany should expect a loss of up to 82 billion euros, while if an insolvent Greece remains within the single currency bloc it would cost Berlin 89 billion euros.  Read the detailed news in this link and pay special attention to the paragraph at the end: http://www.reuters.com/article/2012/07/25/us-germany-economists-euro-idUSBRE86O0FA20120725

So, it follows logically that German politicians will try to steer euro zone policies towards the direction which would minimize its country's loss.

After studying the Ifo report, German Economy Minister Philipp Rösler has drawn his conclusion - Greek exit from the euro had "lost its horrors" - making such a comment during his interview with ARD TV on Sunday. Some senior members in Germany's ruling coalition also agreed with him. http://www.spiegel.de/international/europe/german-economy-minister-roesler-criticized-for-comments-about-greece-a-846110.html

On Monday, the day after Rösler’s comment, the financial market reacted to the uncertainty of the currency - the euro fell to its lowest level against the dollar in more than 2 years.

The Domino effect of credit ratings

Also on Monday, the Credit ratings agency Moody's slashed its outlook for the creditworthiness of not only Germany, but also of the Netherlands and Luxembourg to "negative" from "stable."

Though Moody's maintained its triple-A ratings for all three countries, it said the increasingly uncertain outlook stemming from the European debt crisis was behind the changes.  Read detailed news from this link. http://www.spiegel.de/international/germany/german-press-on-moody-s-cut-to-german-credit-outlook-a-846322.html

A group of economists are calling for a radical restructuring of Europe and the euro zone to prevent a disaster of incalculable proportions.  Read “Economists Warn EU on Threshold of Catastrophe" http://www.spiegel.de/international/europe/debt-crisis-economists-warn-of-euro-catastrophe-a-846327.html

NY-based Institute for new economic thinking, INET, on July 23 2012 released a report stating that politicians need to move decisively and timely to save the euro currency or else it could disintegrate.  Read the report “Breaking the deadlock: a path out of the crisis” 

http://ineteconomics.org/sites/inet.civicactions.net/files/INET%20Council%20on%20the%20Euro%20Zone%20Crisis%20-%2023-7-12.pdf

Europe, with many different languages and the unforgettable history of wars among them, although the Eurovision has members extending to Asia, it is skeptical that Europe has a united vision.

Without a political union, the monetary union doesn't seem to work.

By the way, when I visited Germany I was puzzled as to why a kilogram of peach from producers in Imathia Ημαθία were sold cheaper in Munich than in Athens, after transporting farther away? Who is controlling the pricing of fresh produce?

Meanwhile, in Greece people will continue to cope with austerity measures with bartering, euro money has no use here when people have very little income.

Other links:

You may also be interested in this previous post.

Derivatives and public debt management by Gustavo Piga

Not familiar with the EU organization’s jargons? Here is a quick reference http://news.bbc.co.uk/2/hi/europe/3595155.stm