1. Buba boss doesn't get ECB job.
On October 31, the Bundesbank's Axel Weber will fail to follow in the footsteps of Jean Claude Trichet to head theEuropean Central Bank. While Weber remained the favorite until the end of 2010, his uncompromising and hawkish approach made him unacceptable to many euro zone members. In his defense Mr. Weber will argue that he doesn't want to run a central bank that panders to profligate nations,such as Greece, Ireland and Portugal. Despite this, the outcome represents a serious blow to German chancellor Angela Merkel and turns public opinion in Germany even further against the euro.
2. BoE launches its own QE2.
The Bank of England will launch a second round of quantitative easing in the U.K., despite stubbornly high inflation. With the British economy struggling under the weight of PM David Cameron's austerity drive, the BoE will be focused on growth rather than rising prices. As a result, most members of the Monetary Policy Committee will, towards the end of the year, conclude that extra stimulus is warranted and a competitive currency is needed. There will be no rate hikesin 2011.
3. Euro weakens further, nearing parity with the dollar.
The euro will weaken against the dollar, with talk of parity swirling once again. The move will come as it becomes clear to the currency marketsthat growth in America is stronger than anticipated and that Europe'speripheral countries will need to restructure their debts. The big winner from this depreciation will be Germany, which will see export volumes continue to surge. Ironically, public opinion in Germany will become increasingly hostile towards the single currency (see above).
4. Greece restructures its debt.
Greece will miss its economic targets once again in 2011 and, as the year progresses, come to terms with the inevitable debt restructuring that is required to put its finances on a sustainable path and end its crisis.
5. Pain in Spain.
Spain will follow Greece, Ireland and Portugal will need an EU-IMF rescue package, as the scale of problems in the country's property sector are finally realised.