AFP, BRUSSELS
Economists, banks and even punters in bookmakers are studying more seriously scenarios involving the collapse of the eurozone.
Maybe not its total evaporation, but certainly shrinkage with peripheral or weak countries falling off the currency’s map — and in all cases, according to the experts, with a heavy price to pay.
Analysts agree that no country would emerge unscathed, at least in the short term.
As for the long term? Well, few even dare to imagine the fallout.
In the view of London-based Capital Economics, even a limited redrawing of the eurozone’s borders, with the exit of the bailed-out trio of Greece, Ireland and Portugal over the next two years, would trigger a drop in eurozone GDP of 1 percent next year and 2.5 percent in 2013.
That would equate to the same sort of economic contraction endured between 2008 and 2009 following the financial crisis triggered by the collapse in the US home-loan market.
In a recent note to investors, UBS bank calculated that if a “weak” euro country like Greece gave up the currency, it would cost every man, woman and child there about 10,000 euros (US$13,400) each in the first year, and thousands more over the adjustment period.
Even a “strong” country like Germany would see a loss of between 6,000 and 8,000 euros per head in year one — between one-quarter and one-fifth of the country’s annual economic output.
A return to the drachma, the deutsche mark, the punt and the franc or any other national currency would mean devaluations for some, appreciation for others.
According to Jens Nordvig of Japan’s Nomura Securities, Germany’s currency would rise against the US dollar, but Greece would lose 60 percent of its money’s value.
Italy, Spain or Belgium would lose around one-third each.
While scope for exports would improve, debt restructuring on that basis would mean a dramatic rise in borrowing costs for those governments who write off the most.
National banking systems would collapse, experts say, because of a loss of confidence in the value of the currency that replaced the euro.
This isn’t rocket science — panicking over hard-earned savings, experience shows citizens pull out what they can and flee, while companies would struggle to raise investment capital. And if the economy stopped functioning normally, there would then be the threat of widespread social unrest.
Meanwhile, Germany would lose export business — because of a rising national currency and also the emergence of new, cheaper European competition.
It would be no different in the event Italy or some other big eurozone economy left.
Jacques Cailloux, a Paris-based economist with the Royal Bank of Scotland, said that were France to exit the eurozone, Germany would suffer because “its banking system would be staring at exposure to French banking debt worth some 200 billion euros.”
US banks would be looking at 10 times that amount, Cailloux added.
Looking further down the line, Capital Economics believes prospects for former eurozone economies “may be improved by the ability of [these] former member states to set their own policy and allow their currencies to fluctuate.”
Wages would not have to drop under a devaluation, while suddenly a bottle of ouzo would not cost as much for others to import, for example.
“It’s hard to put a price on it, but clearly it would mean a huge cost, if not quite apocalyptic,” Cailloux said of the price for even partial eurozone breakup.
British banks and Asian-based multinational companies are already engaged in prudent contingency planning for the worst-case scenario.
And as Cailloux says, the problem is “everyone is going to have to plan for this eventuality, that’s the issue for 2012.”
MAJOR BENEFICIARY: The company benefits from TSMC’s advanced packaging scarcity, given robust demand for Nvidia AI chips, analysts said ASE Technology Holding Co (ASE, 日月光投控), the world’s biggest chip packaging and testing service provider, yesterday said it is raising its equipment capital expenditure budget by 10 percent this year to expand leading-edge and advanced packing and testing capacity amid strong artificial intelligence (AI) and high-performance computing chip demand. This is on top of the 40 to 50 percent annual increase in its capital spending budget to more than the US$1.7 billion to announced in February. About half of the equipment capital expenditure would be spent on leading-edge and advanced packaging and testing technology, the company said. ASE is considered by analysts
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day