Will the Euro Survive? Nin-Hai Tseng Thinks So [FORTUNE]|
Despite the many dire predictions about the collapse of the euro zone’s common currency, there are good reasons to believe it will survive.
FORTUNE – The state of the euro looks bleaker by the day. Amid a deepening banking crisis in Spain and ahead of a pivotal June 17 Greek election that could make or break the nation’s ties with the euro zone, the idea of a euro break up has increasingly become a possibility.
The usual suspects have weighed in: Economist Nouriel Roubini, credited for having foreseen the credit crunch, has said the euro zone would collapse sometime this year, with the departure of Greece and Portugal. Nassim Taleb, author of The Black Swan,has boldly said the end of the common currency “is not a big deal.”
And many others on Wall Street have raised chances of a breakup. Last month, Morgan Stanley’s Jonathan Garner told Bloomberg the firm raised its likelihood to 35% from 25%, with the pace of a breakup accelerating over 12 to 18 months as opposed to the previously estimated three to five years. And now half of the population of Germany, which is widely viewed as the euro’s savior, believe the common currency has done more bad than good for Germany, up from 43% in February, according to The Wall Street Journal, citing a poll released late last month by public broadcaster ZDF.
Despite talk of a euro breakup, the euro will likely survive. Here are four reasons why.
1. It’s too painful to break up (even for Germany)
Germany is the only euro-zone nation with enough economic pull to keep the euro together. But for the past three years, Chancellor Angela Merkel has done only the minimum needed to keep debt-troubled nations afloat while demanding huge spending cuts in return – a strategy critics say has irritated the crisis rather than ease it.
2. Euro area voters are risk averse
Given that so many euro zone voters are rich and aging, they are highly risk averse. So when a euro crash is potentially imminent, voters will likely agree to the pains of austerity rather than risk the uncertainties of breaking away from the euro zone.
“This has been proven in all elections in Europe since 2009,” says Jacob Funk Kirkegaard, a fellow at the Peterson Institute for International Economics.
[Read on at Fortune.com]