What if the euro breaks? Can we imagine the consequences? It's possible? I will answer all those questions in this article.
Putting us in Context
The euro zone, made up of countries such as Germany, France, Spain, Italy, Greece, Austria, the Netherlands, Belgium and a long list of developed and developing powers, such as the eastern countries, is on the brink of the abyss.
It is nothing new, only that due to the COVID-19 catastrophe the bad policies of the southern countries, especially Spain, Italy and Greece, countries that have preferred populism and not adjust their public deficits, deregulate the economy, make flexible the labor market, lower spending and / or raise taxes to alleviate the deficit, are on the verge of bankruptcy.
We are talking about countries like Spain that have cost a lot of effort, due to bad economic policies of the 2 major politic parties that has caused us to be in 100% of the deficit on the eve of a recession that many economists predict as the largest since the Great Depression and even higher than this.
And it is that while the capitalist countries of the north have maintained a deficit downwards according to the monetary rules of the EU, countries such as the Netherlands, Austria, Germany, Finland, Estonia, etc. They have reduced their deficit to negative in the annual balance and a debt of less than 70% of GDP, some even below 60%.
In the other hand, the ultra interventionist countries with increasingly suffocated and unproductive economies, such as Spain, suddenly find themselves with 100% debt that, after the drop in their GDP and over-indebtedness this year, reaches the extremely dangerous debt ratio of 120-130% estimated for 2021 and more….
In Italy or Greece, and even in France, things do not look much better, although in the French country they still have more room for maneuver.
And things are getting worse, the European Union has a financial rescue mechanism called EMS, this is going to automatically provide credit for countries like Spain, Italy and Greece. Since they are, as we have seen, in a rather precarious financial situation, and, of course, refinancing the debts of a country on the brink of bankruptcy increases interest rates on loans, something not convenient, but logical now that investors, from large funds, through countries and ordinary people who buy public debt, will demand more interest as there is more risk of default.
But the EMS is there to safeguard EU countries from these calamities and allow refinancing of public debt at low interest rates, lower than investors are willing to pay.
Well, then, everything is fine right? Well, no….
The countries of the south with their populist governments have dedicated themselves to creating an unsubstantiated campaign inquiring that the countries of northern Europe are "unsupportive". They want solidarity with other people's money..
But… what does this sound like to me? Oh yes, the 2008 subprime crisis. Something similar happened, the countries of the south were rescued, which did not resist the recession for, once again, having inflexible, ultra-regulated economies, incredibly rigid labor markets, to get an idea, in In the case of Spain, firing a worker is more difficult and expensive than firing an public worker in Denmark, let us not speak of an employee in that country, whose unemployment is logically non-existent, because unemployment is created by regulations. This would be just one example of the long list of wasted public money problems, regulations that prevent the creation of companies, taxes that are beginning to overcome the Nordic countries, etc. And with insolvent public accounts.
Each and every one of the countries of southern Europe was rescued, in exchange for, simply, making the labor market a little more flexible, deregulate absurdly regulating economy and adjusting public accounts through tax increases. , lowering these (at certain times it is possible) and / or cutting public spending (there is a lot of public money spent that has no real function), we are going to adjust it as they wish.
What happened? That with the exception of Portugal, which followed the Brussels guidelines in broad strokes, Spain, Italy and Greece ignored it, and now they are at the same crossroads, but much more burdensome.
What is that about solidarity? You will see, the EMS rescues without political mediation yes, but the ESM will again demand that they follow basic, common sense guidelines: do not spend more than what you pay in, so that the public accounts are sustainable. How evil Brussels is, demands to be minimally responsible. There is the problem. Southern governments want to continue with their populist economic policies, in the case of Spain even more, with a communist party in government and the PSOE party turned more to the “left” than ever, but the problem is not that, but the "economic measures " They enact, which are something like the “flat Earth society” of the economy.
But to the point, what do the countries of the south ask for? That the rest of the union finance them, that the citizens of countries like Germany or Holland that have "tightened their belts" for years to reduce their debts, go into debt to save the southern countries and WITHOUT CONDITIONS, not through the MEASURE.
The situation is quite strong, the purest and hardest populism has reached Europe. And although the politicians of the countries of the north do not find it profitable electorally to yield in this matter due to the overwhelming citizen opposition to this “mutualization of the debt and without conditions”, the countries of the south move tab with veiled threats to leave the EU like the one launched by the vice president of Spain Pablo Iglesias not long ago.
Meanwhile, the European Central Bank announces billionaire bailouts.
Given this gruesome context, many economists and investment funds predict the breakdown and bankruptcy of the euro, its disappearance as a currency.
And what does this have to do with Bitcoin?
Well, Bitcoin has finally resisted the crisis much better than the exchanges of the different countries, although it fell a lot in the first moment, just coinciding with the confinement in Spain, it recovered quickly and the DEFI and cryptocurrency industry is making smoke.
If the euro were to fail, the rapid adoption of safe haven securities such as gold and cryptocurrencies would be predictable.
Really, in a situation with so many variables, as always in economics, you cannot know what will happen, but in this scenario it is very likely that the price of Bitcoin will skyrocket. Of course, we are talking about the bankruptcy of the second largest economy on the planet, if the euro broke and the citizens of the union adopted, even marginally, bitcoin and other cryptocurrencies as a safeguard for their funds, we would not see a bitcoin price of 20,000 dollars or nothing like that, but could easily reach hundreds of thousands of dollars.
We are talking about 500 million people with a relatively high purchasing power and hundreds of millions with a very high purchasing power, who would see their savings in jeopardy overnight, with all the insecurity that we are facing right now.
I am personally skeptical about the bankruptcy of the euro in a few years, but economists from different investment funds such as the co-founder of the firm Global Macro Investor or the executive Raoul Pal of Goldman Sachs warn about the potential imminent danger.