The Phaserl


Why it Makes Sense to Exit the Euro Zone in Times of Balance Sheet Recessions

by George Dorgan, Testosterone

We think that the Italian, other peripheral economies, and also France will follow Japan for a decade or more of balance sheet recession: stagnant wages, falling real estate prices and a reduction of private debt. On one side, we reckon that this might not be so bad because it will help exports and competitiveness, but still it will be a very hard time. On the other side, we suggest that the weak member states should use the current dis- and deflationary environment and high risk appetite to exit the euro zone. This time financial markets could even welcome the end of the euro zone in its current form.

Traders were happy on Thursday with the ECB rate cut until Draghi spoke about negative rates. What does it mean? Markets simply love monetary expansion and rate cuts, just not for too long!

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