Malmgren: A Eurozone breakup is still possible

Summary: Pippa Malmgren discusses the eurozone with Bloomberg below, calling attention to the diverging interests within the eurozone as a critical factor adding stress despite the relative calm we have witnessed in markets of late. Her view is that this could still lead to eurozone breakup at some point in the future.

I have said in the past that I believe that European policy makers are strongly committed to the euro. And it is this commitment which has allowed the euro to remain intact despite the stresses of the European sovereign debt crisis. The result of these efforts is that when I presented some thoughts on Europe in July, most of them were positive. In fact, we have seen Spain turn from a two-year depression to positive real GDP growth in the most recent quarter.

Nonetheless, Pippa Malmgren’s core point is still valid. The interests of Spain, representing the periphery, and Germany, representing the core, are divergent. To the degree the underlying debt problems in the periphery cannot be overcome, any downturn in the economy will exacerbate these divergent interests and bring the eurozone breakup issue back into view. Subscribers can read some brief thoughts on the eurozone breaking up from two weeks ago.

The Bloomberg video is below with some good thoughts on unemployment, internal devaluation, and the recent strength of the euro.

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