Will the Euro Survive?

The financial markets are the best barometer known to mankind to look at tomorrow's headlines and vote with their dollars.  Here is what the market sees.

Click on the image above to view a larger chart.

The euro was introduced in 1999, and of course, every chart shows the trend graphed above.  But you have to recognize that a major currency crisis started in 1997, and the US dollar was the only game in town.  EVERY currency in the world except the dollar was negative.  So the chart above is not the whole story.

When the euro was introduced, it continued to decline until the low in 2000, as the super strong US dollar started to "come home to roost."  You can see the action of the US dollar and the distortion from 1996 to 2000 in the chart below.  Much of that distortion is not evident in the 1999 introduction of the euro.

Click on the image above to view a larger chart.

But today, we see the euro in a horrible situation that has been predicted from Day 1.  How do you have a combined currency when you have so many different economic policies supporting the unified currency?

It will be amazing if the euro survives, but it almost assuredly will.  It is almost like a last ditch life-saver to many of those countries, but today, it is a massive weight to the one strong country - Germany.  But the chickens are coming home to roost, so the President of Germany's Bundesbank is decrying the floundering and wild spending of many of the other Eurozone countries.  Those countries pretty much have to accept the German mandates, and they will.

So, in the long-run, Europe and the euro will finally take some major steps toward a unified Economic Policy Board that will be run by Germany.  Is it going to take more pain?  It certainly looks like the financial markets are saying "Yes" as the euro is teetering on that consolidation pattern that looks as if it will break down one more time.

Don Hays

If you are a subscriber to HaysAdvisory.com, click here to read our most recent report.  If you would like to learn more about the research and commentary offered by Hays Advisory, click here.

Please see important disclosures at the bottom of this page.