Last summer, we published a Special Report entitled A “Two Euro Solution” to a Terminal Illness. We argued then that the most likely and least painful way out of the eurozone crisis was for Germany and the other core hard money eurozone countries to split off and create a “hard” euro. The periphery would then be free to devalue and better able to manage their “soft” euro-denominated debt. Over the past year, borrowing costs have fallen dramatically for the periphery, but at the cost of a continued painful depression. Following the Fed’s announcement of potential tapering off of its quantitative easing, periphery bond yields are once again on the rise, fuelled by increasing unrest in Portugal, Spain, Italy and Greece. France continues on its track to monetary instability and failure to reform. We are still convinced that a two-way split in the eurozone is more likely than not as the inherent defects of the monetary union continue to prevent it from working and political commitment to the European project continues to unravel.
The "Two Euro Solution" Revisited
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