Markets have begun pricing in the likelihood of a European collapse, where key members of the eurozone withdraw from the monetary union, banking institutions collapse, and widespread defaults reshape the landscape across the pond.
This possibility, considered remote at best in recent months, is now considered to be at least a conceivable outcome from the ongoing sovereign debt crisis. Its increasing likelihood was embodied in UBS of Switzerland’s recent report, “Euro break-up – the consequences” which concludes that without fiscal union, the monetary union is doomed.
“Under the current structure and with the current membership, the Euro does not work,” writes UBS. “Either the current structure will have to change, or the current membership will have to change.”
Ironically, for its part, UBS views a breakup as “close to zero probability” in the paper, citing numerous legal and political hurdles. Instead, the bank sees “an overwhelming probability is that the Euro moves slowly (and painfully) towards some kind of fiscal integration.”
But considering its overall analysis — that without fiscal union the monetary union will fail — it is hard to envision a scenario under which the eurozone can be saved in the manner UBS considers.
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