Stronger Euro Will Slaughter the PIIGS

The Euro keeps moving higher on expectations of an ECB interest rate hike and what is beginning to appear almost terminal dollar weakness.   The export destination mix of  Ireland, for example, is around 60 percent to the EU 27  and 40  percent outside Europe.    Find us a country that grew its way out of a debt overhang with a strengthening currency and rising interest rates.

These countries need to get more competitive and a stronger currency puts even more onus on wage adjustments or the hope and prayer of individual country productivity miracles.     Forcing some to raise corporate tax rates is a move in the opposite direction.

On the one hand the newly announced bailout measures makes the periphery more short term liquid and on the other, expected rate hikes and a stronger Euro makes some of the PIIGS more long-term insolvent.    Policy anarchy reigns.    Can you hear the rivets popping?  (click here if charts are not observable)

This entry was posted in Black Swan Watch, Charts, Currency, Euro, Sovereign Debt, Sovereign Risk and tagged , , , . Bookmark the permalink.

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