Thursday, July 08, 2010

Armageddon imagined

I was talking to Ambrose Evans-Pritchard some time ago about the need to paint the picture of what might happen if the euro did collapse. He and I both agreed it was necessary, but such a task was easier said than done. It has taken an expert team at the Dutch bank ING to work out the most credible scenarios, which they do in a new report called: "Quantifying the Unthinkable".

Ambrose has been quick to write it up, telling us that "a break-up risks global deflation shock that would dwarf [the] Lehman collapse."

In fact, he writes, a fully-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history, devastate every country in Europe including Germany, and inflict a deflationary shock on the US. There would be no winners, warns

The Financial Times is amongst the others who have also written about this report. Its piece is headed, "The fall of eurozone would cause chaos", which rather goes to prove that this isn't just Armageddon Ambrose strutting his stuff. This is for real.

Jill Treanor in The Guardian also offers quite a decent write-up. She tells us of Mark Cliffe, ING's global head of financial markets research, who stresses that he is not trying to predict the probability of an EMU break-up, but merely considering what would happen if the once "unthinkable" were to happen.

"We do not address the potential long-term pros and cons of dismantling EMU," he says. "However, the initial trauma outlined in this report is sufficiently grave to give pause for thought to those who blithely propose EMU exit as a policy option." Treanor's opening makes it sound like a nuclear winter. Gulp!

The Independent does not seem to have done a report and, as for The Times, who cares? It has retreated behind its paywall and its opinion is now irrelevant. I suppose that's the way to hide bad news now. Give it to The Times. No one will ever know it has happened.