Hussman Weekly Market Comment: Erasers
As a result, the Euro is
likely to be pulled apart, and the tensions will probably be greatest across
geographic and socioeconomic fault lines. From a geographic perspective,
Finland (which insists on good collateral even for EFSF actions) and Italy
(where popular sentiment against the Euro is strongest) have the greatest divide.
From a socioeconomic standpoint, Germany (which is strongly anti-inflation and
more oriented toward free enterprise) and the southern European states of
Greece, Italy, Spain and Portugal (which have high debt ratios, heavily
socialized economies, and very fragile banks) seem to be the furthest apart.
The real question is who will get the Euro if the wish-bone snaps – the
stronger more solvent states, or the weaker more inflation-prone states. Until
the answer is clear, it will be difficult to anticipate the future direction of
the Euro’s value. I would expect the least amount of systemic disruption in the
event of an exit from the Euro by the stronger European countries, but that
would also be associated with the maximum amount of Euro depreciation as the
remaining members are left to inflate as they (and the ECB) please. All of this
will be extraordinarily interesting, but it will not be easy.