Tracking the ups and downs of the euro debate is a little wearying. Policy decisions are postponed, inflation hawks suddenly turn dovish, Germany sends conflicting signals on helping (or not helping) weaker neighbors…you get the picture.
Amid the static, investors are starting to discuss the slim but increasing chance that euro membership eventually could change, with weaker countries like Greece or Spain deciding that the standards for euro inclusion are too onerous. Such a move could cause significant legal and financial upheaval.
An FX strategist at a large US bank told me that while a change is unlikely, bank clients who are investing in assets in peripheral euro countries have lately been hearing suggestions that they negotiate protection for themselves “in case something happens and they’re not getting euros any more.”
Paresh Upadhyaya, head of Americas G10 FX strategy at BofA Merrill Lynch, pegs the odds of no change at 80 percent - not bad, except he would have said 95 percent last year.
The upcoming debate over how to manage the euro bailout fund “is going to really determine, at least in the near term, if the euro has dodged a bullet or is just buying time,” Upadhyaya told me. Right now, he added, leaders seem to be “just putting out brush fires rather than solving the problems at hand.”
In short, neither banker expects a change the euro’s makeup anytime soon. But it’s worth keeping an eye on.