Three Arguments Against a Euro Collapse

Lee Munson, founder & CIO of Portfolio LLC, thinks the euro has been trading like the Greek drachma when it should be trading more like the deutschemark. With painfully high debt levels in Japan, and structural economic problems in China and the US, he sees little reason to fixate on the demise of the euro.

From Real Clear Markets:

“First, Japan has the worst debt to GDP in the developed world. How has this been overshadowed by Greece, the industrial powerhouse that it is, and its inability to pay its bills? While the yen has been stable relative to the dollar, Japanese trade will blow up if its currency keeps going up in a straight line.

“Second, China has its own fair share of problems stemming from new tax, labor, and environmental laws that will place serious pressure on bottom line growth. Add to the mix the expiration of their infrastructure stimulus, and margins could get squeezed. Since the currency is still tied to the dollar, there could be social unrest if their currency appreciates.

“Third, consider the United States of America, with its problematic economic future. When the stimulus starts to run out, and Congress raises taxes, the last thing we will need is a strong dollar. A weak dollar means higher exports, which means more jobs and more money for consumers to spend.”

As troubled as the eurozone is, the strongest competitors on the currency playing field also have their own weaknesses. While it’s true that the US has a more robust infrastructure for supporting the state economies that make up its currency, as long as it can, California’s budget remains not much better looking than Greece’s. And, as a whole, the US still has roughtly the same overall fiscal deficit as Spain… about 12 percent.

You can read a few more reasons to not count out the euro quite yet at Real Clear Markets’ coverage of how the euro’s not heading to parity.


Rocky Vega,
The Daily Reckoning