COLLAPSE OF THE EURO?
by Adrian Salbuchi
June 6, 2012
The Euro is creaking and making funny noises. Lloyds of London – who have a pretty good ear to perceive impending disasters – says the insurance market is preparing for the Euro’s collapse and is trying to reduce its exposure as much as possible.
Robert Ward chief executive of the multi-billion dollar and almost five hundred year old institution said Lloyd’s may have to write-down on its £58.9 billion investment portfolio if the euro collapses. In the interview for The Sunday Telegraph he explained the market has put in place a contingency plan to switch euro underwriting to multi-currency claims settlements
It seems Lloyds believes ‘grexit’ is looking more and more likely day by day. Insurers are a good reference point on this, since risk management lies at the very heart of insurance and reinsurance. London as well as Germany are two of the key global long-term risk management markets, counting on extensive expertise and experience in such potentially catastrophic financial upheavals.
Another major insurer providing credit insurance for Eurozone trade – the Franco-German Euler Hermes Group – has also stated is would be reducing coverage for trade with Greece. Clearly, a tell-tale sign that a country is about to go bust is when credit insurance providers decide to stop trading with it.
Also going into Orange Alert Mode are the German mega-bankers. Last weekend Juergen Fitschen, co-chief executive of Deutsche Bank, described Greece as a “failed state” run by corrupt politicians adding that even though he did not think that if Greece exits the euro that would immediately lead to the collapse of the eurozone, he was nevertheless jittery about the whole matter adding that “what we need to do is prepare for that eventuality.”
Correct, Juergen! If Greece goes, then the temptation for Portugal, Ireland, Spain, Italy and others to follow suit would indeed be great. And maybe we should not just be focusing on the weak end of the Eurozone – Greece, Portugal, Spain, Italy – but should also turn an eye on its strong end: because even you Germans might – for very different reasons – end up realizing that you too would be far better off dumping the euro and going back to the proverbially strong Deutsch Mark.
Then, Germany would have no need to bail-out and rough up “Today Greece, tomorrow Europe!”. As German interior minister Hans-Peter Friedrich just told the Leipziger Volkszeitung newspaper, Germany was prepared to help rescue Greece but only if it helps itself and honours its agreements, adding that “We’re not willing to pour money into a bottomless pit”.