Euro Crash?

“This will be the biggest story of 2010,” says our macro adviser Rob Parenteau, “but Wall Street economists and investment analysts will be the last to really get it. The European Monetary Union had several design flaws from the get-go.

“We presume the path of least resistance will be a maxi-depreciation of the euro, on the order of another 20–30% decline in the exchange rate of the euro.”

Say again: A 20-30% euro crash.

“It begins, but does not end, with Greece (actually, it began with Latvia and Ireland, but that is another story). Band-Aids to save Greece, no matter how graciously offered by the legitimately concerned German politicians, cannot and will not paper over the cracks in the rest of the peripheral eurozone nations -- which we will refer to as the GIIPS, since that seems to be the more politically correct version of the more porcine moniker.

“The math of the fiscal balances in the GIIPS is such that partial default or partial public debt renegotiation is all but inevitable. We would not touch GIIPS’ public debt until this becomes evident to more professional investors and until the potential haircuts (principal reductions) can be plausibly quantified.

“All else on the way to public debt default is shadowboxing, mostly for public political consumption only. IMF or eurozone loans or fiscal assistance only accomplish the extend-and-pretend wash/rinse/repeat cycle we have seen policymakers turn to one too many times during the recent financial and economic crisis.” Agora Financial