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The drachma and the dominoes.

By LIAM HALLIGAN [The Telegraph] – Let what is now happening in Europe serve as a reminder, a 28 million decibel wake-up call that serious economic debate matters and matters a lot. Attempts to dismiss or even suppress it, because it’s “hard” or “boring”, have very real human consequences…

We’ve ended up with a eurozone so replete with inherent contradictions that it threatens now to spark financial meltdown across Europe and serious civil unrest. Global financial markets are in a trance, a paralysis of fear and confusion. With politicians and policy-makers now finally admitting the jumped-up dismal scientists are correct, and “Grexit” could happen, investors in Europe and elsewhere are slashing their euro exposure.

During the first quarter of 2012, bolstered by German growth, and with eurocrats scoffing at those who said Greece might leave, the single currency rose 3pc. Since that indecisive election on May 6, though, and Athens’ subsequent inability to form a government, fears of a fully blown default, and eurozone-wide contagion, have spooked global markets.

On Friday, the euro fell below $1.25 to a 22-month low and is now down over 4pc this month. Traders are contemplating the financial turmoil if Greece leaves, to be followed by who knows whom?

Equities, meanwhile, have gyrated, on very low volumes. Institutional investors, clueless as to what will happen, have stock-piled cash. Having endured crisis after crisis since 2008, financial markets in general have volatility-fatigue. With trading thin, investment isn’t happening, so compounding the broader growth-stasis.

That cranks up welfare payments, lowers tax-takes and makes European sovereign balance sheets look even worse. And so, on an axis of printed money, the bank-government-bank negative feedback loop spins faster and faster. How long before the gyroscope finally topples and comes crashing down, with investors dumping the euro altogether?

With “break-up” becoming ever more plausible, monetary union is showing structural cracks. Germany’s 30-year bond yield last week dipped below 2pc, as the borrowing costs of embattled “peripheral” countries shot-up. Investors are so desperate for a haven, they’re now lending Berlin short-term money for free.

A single currency can be maintained if no-one worries if they’re holding German, Spanish or Greek euros. Well, savers are worrying now…

Continued in The Telegraph | More Chronicle & Notices.

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