The Euro – A digression

Friday night I was invited to a “late Thanksgiving dinner”, late because Americans based in Canada celebrate Thanksgiving on the Friday night – its easier than doing it on Thursday, since Friday is a school day up here (Canada’s Thanksgiving occurred several weeks ago).

At our dinner was the CIO of a major pension fund, and his background was a fascinating element to his perception of the future of the Euro currency.  Before being in the investment game, he worked for the ministry of finance of one of Europe’s core country.  Clearly a very smart and dedicated man, he came across as typical of this high profile network to which he belongs, reserved and effacing.  I mean this as a compliment; this is what always irritates people who meet Goldman Sachs bankers, they never come across as arrogant (nearly ever), but their few (and quiet) comment are usually incisive.

However, this upbringing can create some major blind spots; in this case his view is that the ECB and the “government” authorities will do all that is necessary to preserve the Euro – in fact, the creation of the Euro is a first hand process; those responsible for its creation are still in charge today.  What was fascinating was that this man, who lives and dies by the market, could not contemplate that the market would reject the Euro experiment.

One aspect which always troubled me was the European bureaucrats’ antipathy for the democratic process; brought up in specialized institution, operating in the rarefied air of academia and government the democratic process has always been an afterthought, something that gets in the way of the “Grand projet”.  Well democracies don’t work that way:  Ireland will soon elect a new government that will probably repudiate the agreement made last night (with the granting of €85 billion in “help”) because lets be clear here, the only people being help here are the European banks – French, British and German banks are being “saved” at the expense of the ordinary Irish citizens. 

How long does anyone think this will work?  Many forget that Ireland rejected the latest form of the European Union, for the Irish citizen which rejected further integration this is a slap in the face.  Spaniards, Portuguese and Italians are waking up to this European plans that insures that the institutions survive at the expense of its citizens – actually its even worse, since these institutions are perceived as foreign (which they are).

It reminds me of the situation in the province of Quebec with the Independence movement which began in the early 1960s. Those who though they were so close to success in the early 1980s, and again in 1995 cannot change their discourse, their life was sacrificed on the altar of this cause, to repudiate this cause would be equivalent to them repudiating their life’s work:  unthinkable, and yet the likelihood of Quebec ever “separating” for the rest of Canada must be in the 2-3% range today, the conversation has moved on.  It no longer resonates with the population, and yet their song remains the same. 

It will be interesting to see what happens to the Euro, my guess is that as soon as one restructures (e.g. defaults) several others will follow.  Greece is almost certain to be that country, and early 2011 would seem to be when the chips fall, Ireland, Portugal and Spain each with massive unemployment and social unrest are certain to follow closely by, and leave the Euro.

The interesting countries are: Italy and France.  Only time will tell.