UBS Quantifies Costs Of Euro Break Up, Warns Of Collapse Of Banking System And Civil War

[stockholmer]

http://www.zerohedge.com/news/bring-out-your-dead-ubs-quantifies-costs-euro-break-warns-collapse-banking-system-and-civil-war

Any time a major bank releases a report saying a given course of action is too costly, too prohibitive, too blonde, or simply too impossible, it is nearly guaranteed that that is precisely the course of action about to be undertaken. Which is why all non-euro skeptics are advised to shield their eyes and look away from the just released report by UBS (of surging 3 Month USD Libor rate fame) titled "Euro Break Up - The Consequences." UBS conveniently sets up the straw man as follows: "Under the current structure and with the current membership, the Euro does not work. Either the current structure will have to change, or the current membership will have to change." So far so good. Yet where it gets scary is when UBS quantifies the actual opportunity cost to one or more countries leaving the Euro. Notably Germany. "Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. " It also would mean the end of UBS, but we digress. Where it gets even more scary is when UBS, like many other banks to come, succumbs to the Mutual Assured Destruction trope made so popular by ole' Hank Paulson : "The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war." So you see: save the euro for the children, so we can avoid all out war (and UBS can continue to exist). The scariest thing, however, by far, is that for this report to have been issued, it means that Germany is now actively considering dumping the euro.

snip

The economic cost (part 1)



The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.



The economic cost (part 2)



Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over EUR1,000 per person, in a single hit.



The political cost



The economic cost is, in many ways, the least of the concerns investors should have about a break-up. Fragmentation of the Euro would incur political costs. Europe’s “soft power” influence internationally would cease (as the concept of “Europe” as an integrated polity becomes meaningless). It is also worth observing that almost no modern fiat currency monetary unions have broken up without some form of authoritarian or military government, or civil war.

snip

[Dover]

1. It's being fairly openly debated whether Germany will leave the Eurozone.

Here's just one search on the topic:

http://www.google.com/#sclient=psy&hl=en&site=&source=hp&q=will+germany+leave+the+european+union+and+euro+currency%3F&pbx=1&oq=will+germany+leave+the+european+union+and+euro+currency%3F&aq=f&aqi=&aql=&gs_sm=s&gs_upl=2953l2953l0l4735l1l1l0l0l0l0l1672l1672l8-1l1l0&bav=on.2,or.r_gc.r_pw.&fp=7d86af9665111856&biw=1012&bih=554

[nadinbrzezinski]

2. Oy...and yes the Germans are considering it

We are overdue for a major European war, so saiz UBS though.

[Selatius]

5. I hardly believe the Germans are spoiling for war when talking of dumping the Euro.

For Europeans, I think they are definitely not in a rush to have it happen three times in less than a century. Bankers may want to kneecap Germany for challenging their power and asserting their right to control their own currency, but I sincerely hope Europeans aren't so easily manipulated into serving the bankers, especially after two bloody world wars. I could see a conflict between perhaps NATO and Russia happening but not two or three major European powers going at it.

[nadinbrzezinski]

6. I doubt anybody is

Why I says so says UBS...but unintended consequences might lead to that.

[roamer65]

3. If the euro goes, so will the worldwide fiat currency system.

[nadinbrzezinski]

4. I actually can see this as a depression

We know what happened last time.

[roamer65]

7. It will make the GD look like a picnic, nadin

Buy gold while its still cheap...that is my advice to all of you.

[nadinbrzezinski]

8. Well let's be honest...any depression

Will make that look like a picnic...people alive then are mostly dead. This is also the reason this may end up in a glorious war....since most folks have no clue.

Technically it might be worst, but none has a real world experience to compare.