The "Euro Zone"

[gxc999 7]

It's still a damn mess. There's significant doubt as to whether or not Greece will be in the EU and/or using the Euro in a couple of months. Italy and Spain are major worries as well. There's actually doubt as to how long that currency may last period. On the plus side, the USD has risen fairly significantly, against the Euro, as a result. What do you guys think? How much of a difference would there be for us in North America if a country or two fell out of the EU?

[MyBoxersSayJoe 132]

I don't really think the fundamentals of our currency or economy for that matter are all that much better than the EU. I spend a lot of time on www.zerohedge.com , though, and it definitely doesn't support the mainstream media's narrative.

[Chadd 916]

It will impact the markets more heavily than the day to day routines of average Americans. I do agree though that the fundamentals of our own economy are somewhat shaky.

[DLK 0]

I do think we're spiraling faster and faster towards a point of no return.

The most likely "best-case" scenario seems to be a move closer towards (fiscal, at least) federalism for the union. Allowing the ECB to loan directly to sovereign countries, establishing it as a lender of last resort, would be a huge step in the right direction...and would quite possibly have averted this crisis if that change was made a few years ago. Regulation and oversight of the banking sector should be moved from the national level to a union-wide level. A euro-wide deposit insurance organisation should be set up to help recapitalise failing banks.

Creating a true fiscal union and transferring national debt into joint Eurobonds would be an ideal solution - let the ECB act as the Fed does for the US and guarantee all national debts...but I see that as a pipe-dream yet in terms of political support. That, more than anything else, would help to avoid situations like the crunch Spain is in - the markets are simply pushing it under water. Spain and England have roughly the same levels of national debt and deficits, but Spain's borrowing costs have spiraled out of control to unsustainable levels (6% on a 10-year bond? Really?!?) while England's cost remains VASTLY lower. For that matter, the debt and deficit levels of the eurozone as a whole are lower than those in the US...but the dollar is a paragon of stability and the Euro is anything but right now. Creating one euro-wide asset that is guaranteed and doesn't rely on the fortunes and failures of one country would go a long way towards fixing that...if you could only get the support.

I see it as increasingly likely that it will not be as simple as Greece being forced out of the euro zone. If the euro-zone leaders cannot commit to stronger fiscal integration, I expect the conversation to shift to how to best begin to dismantle the union. The projections I've seen for an orderly and "best-case" exit for Greece have suggested the US would likely suffer between a 0.5% and 1% drop in net output for the first year...not especially significant, IF the damage could be contained with a Greek exit. That seems exceedingly unlikely to me.

Despite the nearly idiotic insistence on austerity for all from Germany, the reform/bailout package the Greek government agreed to earlier this year is still hugely in the best interests of Greece...if the voters can only manage to realise it. I don't have high hopes, but we'll see in a couple of weeks.

[gxc999 7]

Very solid post. If they force Greece out, will they do the same w/ Spain, Italy etc? They must find a systematic way to contain this contagion. Germany alone cannot simply finance the whole EU, and they can't kick everyone with a debt problem out or else there will soon be no EU. However, will all the other solvent nations agree to the ECB having as much control as DLK indicated? i tend to think not, but they obviously should.

A few things we do know are that 1)EU debt crisis will result in a stronger dollar 2)It will likely hurt our exports to Europe significantly and 3)Our debt will be more attractive to investors short-term. Beyond that, how much impact it will have on us remains to be seen.