F/X weekly comment

Another year, another pound, and maybe even a few more centimes thrown in for good measure. What a way to start 2012, basking in the relative wealth of 1.2130 and looking forward to even better things to come. Can it be true?

Not so fast...

I hate to be a killjoy about this, but I think we have to keep a grasp on reality here. The pound isn't worth 1.2130 Euros because it represents a vibrant economy bursting with growth potential, low debt and healthy surpluses. Far from it; the pound is at this level because the Eurozone economies are in an even worse shape than ours, and that's saying something. Takes the gloss off a bit, doesn't it?

But on the other hand...

A pound will still be a pound when we get to the end of 2012; a Euro may not be quite the full shilling when we get to that stage. I've listened to lots of pontificating over the last few weeks from political commentators, economists, traders and the like, and it strikes me that I've never heard so many people (not all though), who are convinced that the Euro cannot survive in its present form. Personally, I have no doubt that the Euro will exist in a year's time, but I do think things will have changed. I can't for the life of me see how Greece can possibly continue as a Euro country. I think that even after two bailouts (should that be bailsout?) it will still struggle to avoid default, maybe as early as Aril this year. Lending billions to an ailing economy is brave indeed, expecting to get your money back is downright foolish.

One out...

Not all out maybe, but I have a few candidates. Here is my list of cast iron favourites to still be members of the Euro club at the end of the year: Germany, France, Belgium, Luxembourg, Holland, Austria, Finland and Monaco. That, I agree, leaves quite a few casualties, but I don't expect the rest to be cast to the wolves. As I see it the Eurozone needs a relegation and promotion system. A premier league and first division if you like, with maybe a Doc Martins southern league tagged on for good measure.

I think there is a strong case for arguing that the Euro will reach breaking point this year, and something will have to be done. Anyone remember the ERM? And the Snake? Any country in such a mechanism isn't completely tied to one exchange rate, it has a leeway in which the rate can move. Such flexibility is currently craved by many of the peripheral countries. This would be Division 1. When any of the countries in this division manages to get its finances in order, it can be promoted back to the Premier division, the Full Monti (sorry, Euro).

The Southern league's founder member will of course be Greece, possibly to be joined by the likes of Cyprus and Malta, and any of the PIGS that flounder in Div 1. They, I'm afraid, are the basket cases, consigned to near economic collapse and forced to queue up in the Brussels soup kitchens for handouts. Just like bailouts, but you don't have to pay them back.

Short term?

Make hay while the sun shines. I'm converting at least half of my meagre sterling pittance into Euros. We might see 1.2200 this week.