The euro will go on, and on, and on …

Over the weekend, Standard & Poor’s downgraded nine Eurzone countries, calling into question the viability of the Eurozone for the long term.

France was downgraded to a level not seen since 1975. Italy is now considered the same credit risk as Kazakhstan. Portugal’s credit has now reached junk status.

“This is not a catastrophe”, the French Finance Minister told his people. “But it's not good news”.

I’d say that’s a mild understatement, although the markets reacted mildly because it’s not wholly unexpected.

It’s just a reflection of the lack of confidence in Eurozone leadership.  A situation that’s been going on for a long time now.

What needs to be done?

The ECB needs to start acting like a fully backed central bank, offering long-term debt and bond support along with Quantitative Easing for the Eurozone.

It’s doing some of those things, but not enough.

What does it mean for the Eurozone itself?

I guess it means that, after a decade of jockeying for jurisdiction, vying for victory and debating for directives, the Eurozone is now hitting its hardest year in its history.

Will it survive or will it fail, and what does it mean for the changes to the banking system that have been implemented to date?

To be truthful, the changes to the banking system will stay in play.

We’ve made European financial markets a little bit more transparent and open thanks to directives such as the MiFID and the PSD.

Cross-border Euro payments can now be made at the same price as domestic payments, and pan-European trading through electronic algorithms is now as easy as pie.

Even clearing and settlement has been adapted a little bit, although there’s still a long way to go as illustrated by the fact that we are forming the new Clearing & Settlement Working Group, CAS-WG.

But if the whole thing does fall apart and the Germans adopt the Deutschemark once more, the Greek the Drachma and the French the Franc, will it mean that all of this work goes away?

Will we go back to charging €’s for a withdrawal from a neighbouring country’s ATM?

Will we return to London market trading without any reference to Frankfurt or Paris, let alone Amsterdam, Madrid, Stockholm, Copenhagen and others?

I don’t think so.

The efficiencies of pan-European infrastructures will remain in play, as they are today, and the banks that offer and leverage the opportunity for pan-European coverage will continue to reap benefits by being more competitive through scale advantages.

So the investment to date whilst not being justified or even worthwhile for some, will continue to deliver the benefits originally anticipated by others.

It is for these reasons that I propose we have a new European anthem that goes something like this (to the tune of Celine Dion’s Titanic song, My Heart Will Go On):

Every nightmare for Merkel,
Sarkozy and Draghi,
Is how the euro goes on, and on.
Dragging on forever,
There’s no agreement,
And yet debate about the euro, goes on.

Yes, no, maybe and then nein,
They hope the euro will go on.
Once more, they meet zut alors,
But don’t agree what to do,
And hope the euro will go on and on.

From Maastricht to crisis
They wish it a lifetime,
And don’t want to let go till it’s gone.
EU and EMU,
Let the whole thing pooh-pooh,
And still want it to then go on.

Yes, no, maybe and then nein,
They hope the euro will go on.
Once more, they meet zut alors,
But don’t agree what to do,
And hope the euro will go on and on.

They’re here, there’s nothing they fear,
Until the bears bite too hard.
They’ll stay forever this way,
With a currency fail,
And hope the euro will go on and on.

I guess you get the idea.

Meantime, this blog entry is inpired by Eurocrash! The Musical.  Go see it!