Credibility, inflation and quaint relics of a previous society

“[The ECB] will end up as the highly credible defender of the value of a currency that no longer exists.”

It’s becoming increasingly clear that Europe has a problem to which the solution will be world-changing. The way I see it, there are only two real possibilities:

  1. The ECB does act as lender of last resort, forever changing the political and fiscal nature of Europe; or
  2. The Euro collapses to some extent and some or all of the Euro countries leave the Euro.

The first is less likely that the second in my view, but also less dramatic in terms of impact. That first option probably results in more European integration, but with wide-ranging implications for international politics and the peripheral Euro countries. Belonging to the Euro would mean something far more substantial than the common currency they share now.

The second option would be the partial undoing of more than two decades of work to unify Europe.

I collected some old Zimbabwean trillion dollar notes as that currency was on its way out. It might be time to do the same for the Euro.

Hopefully this will caution others from ill-conceived ideas of adopting common currencies.


Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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