The Euro: Is It Short-Term Gain For Long-Term Pain?

30/06/11 -- There's an interesting and thought provoking piece on the euro and European debt on a Wall Street Journal blog here today: The Euro Has Bigger Fish to Fry Than Greece.

The PIIGS story is clearly far from over, which would suggest that today's sterling exchange rate of 1.1050 against the euro is somewhat miserly. However with the ECB looking likely to raise interest rates imminently, things may get worse for the pound before they get better.

Merv the Swerve seems smugly rather content to see the pound slide further in an attempt to boost our exports. Out of interest in 2010 our primary export homes were the US (14.71 percent), Germany (11.06 percent), France (8 percent), Netherlands (7.79 percent), Ireland (6.89 percent), Belgium (4.65 percent) and Spain (4 percent).

With the pound at, or close to, it's lowest levels against the dollar since January, as well as a fifteen month low against the euro then exports (including grains) to all of of those countries should in theory take a boost.

But that's only if they can afford to buy what we have got to sell.

As EU interest rates rise, the rate at which the PIIGS accelerate into their own shit will also increase. And I for one don't want to be standing too close to the fan when that happens.