Euro Not OK

From the U.K. Telegraph:"Overvalued euro set to plunge 'within months.' Key bit:

In recent days, futures traders in the US have significantly increased their bets that the euro will fall against the dollar. Data released by the Washington-based Commodity Futures Trading Commission on Friday showed that the "net short position" of trades against the euro by hedge funds and speculators almost doubled in the week to March 3 to 19,431 contracts from 10,081 contracts a week earlier.

What's going on?

Over the last few years, Western Europe loaned oogoodles of money to Eastern European countries, businesses and consumers. Now those loans are looking like very, very bad bets. Marc Chandler of the Brown Brothers Harriman currency desk writes about one example:

"[M]arkets remain concerned about European bank exposure to Eastern Europe with Latvia's Premier Dombrovskis warning the country may be bankrupt in three months if it does not make budget cuts required under the IMF to receive the next installment of its IMF loan."

With something like $1.5 trillion on the line, the situation has become known as the subprime crisis of Europe. The European Bank for Reconstruction and Development calls the crisis "manageable." Folks in other places are sounding less convinced, like the South Korean finance minister. The Tehran Times writes that the crisis threatens "the idea of one Europe."

The Tehran Times may contain a hint of gloating, but there is some grounding in reality. The common currency of the European Union means stronger economies like Germany's are forced to operate under the same European Central Bank policies as as weaker one like Greece's. As the recession deepens, universal fixes get harder to fashion. Mukund Multani writes at Seeking Alpha, "Considering how hard it's been for President Obama to get the House and the Senate to agree on a concrete stimulus, imagine how hard it would be for the European Commission to do the same in a fair manner for its 16 member nations."

