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Euro Area Headed for Break-Up, SocGen’s Edwards Says

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Alexis Xydias
Friday, February 12th, 2010

Southern European countries are trapped in an overvalued currency and suffocated by low competitiveness, a situation that will lead to the break-up of the euro bloc, according to Societe Generale SA strategist Albert Edwards.

The problem for countries including Portugal, Spain and Greece “is that years of inappropriately low interest rates resulted in overheating and rapid inflation,” London-based Edwards wrote in a report today. Even if governments “could slash their fiscal deficits, the lack of competitiveness within the euro zone needs years of relative (and probably given the outlook elsewhere, absolute) deflation. Any help given to Greece merely delays the inevitable break-up of the euro zone.”

The euro has slumped 9.9 percent against the dollar since November on concern countries including Greece will struggle to tame their budget deficits. The common currency and stocks in the region dropped yesterday as European leaders closed ranks to defend Greece in a plan that investors said lacked details.

The euro fell for a third day against the dollar, to $1.3557 as of 10:35 a.m. in London. Europe’s recovery almost stalled in the fourth quarter, as gross domestic product in the 16-nation euro region rose a less-than-expected 0.1 percent from the third quarter, the European Union’s statistics office in Luxembourg said today.

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This article was posted: Friday, February 12, 2010 at 4:32 am

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