Essay about Euro Crisis

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The Eurozone in 2012

EUROZONE CRISIS: Eurozone fracture in 2012

This paper outlines a plausible scenario in which the Eurozone fractures in 2012. Events are unlikely to follow the path precisely as described, given the complexity of the problem and the number of variables which are continually changing. That said, we feel 2012 is unlikely to end with all the current members still being part of the Eurozone. Mapping a ‘break-up’ scenario should help readers understand how fragmentation could occur and therefore assist businesses’ contingency planning. To this end the paper highlights some key events and when they are due to take place. It also identifies some key indicators to monitor which are likely to dictate
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In the second quarter, Italy suspends its debt repayments following the collapse of the Monti administration and differences with the IMF and other
Eurozone leaders.
The ECB is likely to increase liquidity provision and work with Eurozone governments to protect their banking sectors. However, Eurozone leaders remain unable to agree crucial policies in time to stem the contagion from Greek and Italian sovereign non-payments. Portugal and Spain, unable to access emergency bailout funding and with no recourse to private investors, suspend their debt repayments and also announce their intention to leave the Eurozone.
From early 2013 onwards, politics in Europe becomes more polarised and nationalistic. Those nations withdrawing from the Eurozone impose protectionist measures, in part to limit the loss of their foreign reserves. Amidst much acrimony, the EU begins the process of scaling back to a free trade agreement.

10 January 2012 | PAGE 1


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EUROZONE CRISIS: Eurozone fracture in 2012

Key indicators in 2012:
Alarming Signs:
1. The failure of the PIIGS to get their debt auctions away in full to private buyers at sustainable interest rates
(e.g. < 5%).
2. Ratings downgrades for the French government and the EFSF, increasing investor scepticism that the
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