“Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change,” according to UBS.
The above statement is from a report published by the firm yesterday which examines in great detail the euro zone sovereign debt crisis and the implications for financial markets and the global economy.
UBS summarized its findings by saying that “Our base case for the Euro is that the monetary union will hold together, with some kind of fiscal confederation (providing automatic stabilisers to economies, not transfers to governments). This is how the US monetary union was resurrected in the 1930s. It is how the UK monetary union, and indeed the German monetary union, have held together.”
“But what if the disaster scenario happens? How can investors invest if they believe in a break-up, however low the probability? The simple answer is that they cannot. Investing for a break-up scenario has not guaranteed winners within the Euro area. The growth consequences are awful in any break-up scenario. The risk of civil disorder questions the rule of law, and as such basic issues such as property rights. Even those countries that avoid internal strife and divisions will likely have to use administrative controls to avoid extreme positions in their markets.”
“The only way to hedge against a Euro break-up scenario is to own no Euro assets at all.”