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Collapsing Euro is riskier than ‘gambling on Bitcoin’

Published on 6th September 2023

The Express reinforced my Comment piece themselves the following day:

A leading economist has warned that the Euro is only being sustained because the credit rating agencies have not downgraded Germany yet.

Writing for Bob Lyddon, has warned that investing in the currency is now less safe than “gambling on bitcoin” and other crypto currencies because of the unsustainable debt in the EU.

His piece comes amid new concerns over the EU’s single currency which is used by a majority of its members.

With EU debt now well above that of the UK as a percentage of GDP, there are serious questions over where the reserves to sustain the Euro will come from.

The economic woes, partly brought on by the pandemic lockdown, have meant the eurozone unlike Britain has already gone into recession.

The crisis is a long way from the boasts of former European Commission President Jean-Claude Juncker who once boasted the single currency was “the EU’s greatest achievement.”

Mr Lyddon now points out Germany’s credit rating is all that stands between the Euro and collapse.

In reference to France’s rating tumbling, he said: “Even that is hanging by a thread: €417bn dwindles to €183bn if France’s public credit rating falls just one level from AA to AA-.

“France only escaped that in June this year because the rating agency Standard and Poor’s said France’s debts had the ‘implicit support’ of Germany.

He went on: “For ‘implicit’ read ‘doubtful’ – there is no legal obligation on Germany to pay France’s debts of €4 trillion as well as its own, also €4 trillion.

“Political considerations would supposedly cause it to. Really? Even if it wanted to, does Germany have the necessary resources? Is it good for €8 trillion, or indeed the entire €15 trillion if Germany ‘implicitly supports’ all the Eurozone member states?

“That would be over 300 percent of the size of its whole economy. Even Greece’s debt is only 193 percent of the size of its economy and that merits it having a Standard and Poor’s credit rating of BB+ (denoting a speculative investment with a substantial risk of loss).”

He described German support for other countries debts to sustain the euro as “a House of Cards” which could collapse at any moment.

“If Germany was responsible for such a massive amount of debt, its credit rating should be nearer to the CCC level – junk with a very high risk of loss.

“That’s the problem. Germany enjoys a AAA rating because the rating agencies in one breath consider it in isolation, and in the next breath they wheel in Germany’s implicit support to justify maintaining inflated ratings for other Eurozone member states, without adding that member state’s debts onto Germany’s and adjusting Germany’s rating downwards.”

Mr Lyddon also made critical comparisons with crypto-currencies like Bitcoin which the UK Treasury has dismissed as little better than gambling.

He noted: “The euro has no tangible backing, and, unlike the pound, dollar, yen or Swiss franc, it does not have a country behind it.

“All UK citizens back the pound and, God help us, 100 percent of the UK’s debts. We hold all the levers of economic management over the pound – even if we regularly crunch our gears – and in the worst case our Government can instruct the Bank of England to issue more pounds to service the UK’s debts.”

He said that like bitcoin the Euro is supported by “a pseudo religious belief.”

Mr Lyddon added: “Digital currencies – bitcoin, stablecoin, Britcoin et al – makes your head spin. The spinning has helped the euro grab on to proper currencies like the pound and the dollar and make out it is like them.

“Its shop window is certainly decked out like a proper currency – just don’t go in the storeroom and see what’s behind it.

“The Euro no better than bitcoin? Maybe we’d better start believing it.”