Mary Ellen Synon for the Daily Mail:
The Brussels elite are pretending the question does not arise, but the financial world knows the question is there, hanging over the entire European Union economy:
is the single European currency going to break apart?
One answer was given last week by the Swedish economist Gabriel Stein at Lombard Street Research: 'Euro RIP - not yet, but not unthinkable. Why not? The grass might indeed be greener on the other side of the fence.'
Another answer was given by the hedge fund boss Hugh Hendry, founding partner of Eclectica Asset Management: 'I fear it is becoming more likely that the euro will break up.' And his investment portfolios are reflecting that likelihood.
All of which kind of talk has forced Jean-Claude Trichet, president of the European Central Bank, to give an interview to the financial news service Bloomberg.
In it he tried to kill speculation about the collapse of the eurozone by saying that the current financial crisis poses no threat to the euro area. It was a miscalculation by Trichet. The interview only increased speculation.
As Stein said, 'The mere fact that M Trichet had to address this hitherto taboo topic at all shows that financial markets are taking a less sanguine view.'
Indeed, the financial markets are showing just what they think of Trichet and his assurances by piling even more pressure on the eurozone's PIIGS - an acronym for the weakest eurozone countries, Portugal, Italy, Ireland, Greece and Spain.
That ever-increasing pressure from the financial markets may lead to the collapse of the euro. Not that the markets have such power directly.
But because financial markets now reckon the chronic deficits of the PIIGS may lead at least one of them to default on sovereign debt, the markets now are making debt so expensive for them that it may put them under an intolerable fiscal strain.
The markets could also downgrade their debt so much that the weak eurozone countries would find it increasingly hard to borrow. This month Portugal, Spain and Greece have seen their credit ratings downgraded. It is likely the ratings agencies will hit Ireland's next. They will then find it not only more expensive to borrow money, but more difficult to find any investors willing to lend to them.
http://i.dailymail.co.uk/i/pix/2009/...57_468x286.jpg Protestors clashed with police in several Greek cities in riots fuelled by growing economic hardship
The PIIGS will then find their economies grow even more shaky. Their citizens will grow more angry at rising unemployment and shrinking state services. Already there have been riots in Greece. Hendry reckons civil unrest is likely to spread. At some point in this downward spiral, the money markets think at least one of these PIIGS will default on debt.
In the days before the euro, when Italy had the lire and Greece had the drachma and so on, a country in such trouble could devalue its currency to help increase its exports and take pressure off its jobs. Escape from the euro would also allow a country to regain control over its own monetary policy.
All of these remedies are available to Britain because sterling remains independent. But none of these remedies is available to any country that stays in the eurozone. The only way out for them is - out.
So worried are the Brussels elite that this might actually happen that they are threatening to force Germany and some of the other stronger countries to bail-out the PIIGS.
Last week the German finance minister reacted in fury at the suggestion, as well he might. Germany has euro problems of its own.
According to Charles Dumas, also of LSR, its exports fell 11 percent (by volume) in November (from October) and its industrial production is down further from its peak than Britain's. Germany is finding it tough trying to export from the eurozone when the ECB keeps exchange rates so high.
As Dumas puts it: 'Euroland has unpleasant surprises in store.' Except some of us won't be surprised in the least.
