Bye-bye Euro-Zone??

Instability in the Euro-Zone is growing as the global economy comes under further pressure. The E-Z is now comprised of 16 nations, all of whom are governed by separate governments, yet only one central bank. The ECB is in charge of setting monetary policy and this week reduced rates to 2.00%. Meanwhile, each government is trying to figure out their own plan to stimulate the respective economies within the Euro-Zone. With some of these countries much smaller and posing greater investment risk than others, bond yields between neighboring countries have widened to record levels. While Germany can raise money by selling debt at 3%, other countries must pay nearly 8% for the risk involved. This is not good. If each country had its own central bank (and currency) it could act unilaterally to do what its economy needed. This makes Trichet’s job very hard as head of the ECB. Some believe the conflicting interests could lead to disbanding of the Euro-Zone if the global economy gets much worse. This is not a widespread fear yet, but this is also not an alarmist or conspiracy theory grasp at straws. There is a real threat and if the fear spreads the euro could get crucified. I plan to keep an eye on who’s talking about this and what the tone is as the euro remains quite vulnerable. Stay tuned for updates.