Will hidden liabilities bring down the euro?

An advertisement changed my life. While working as an investment strategist on Wall Street in 1993, I came across a similar position advertised in The Economist. What led me to apply was not the similarity, but rather the geographical difference with my then current role: the position on offer was in Germany.

Although Californian by birth, I had studied in Germany for a time and spoke the language reasonably well. I had also travelled around Europe and had a fondness for its rich history.

It was more my youthful wanderlust than career plans that led me to fly over and interview for the role, which I was subsequently offered. I moved over during the Christmas holidays, 1995.

In sharp contrast to the multitudes that left the old Continent for the New World in the 18th and 19th centuries in search of a better life, I went the other way. And I never went back.

As I was settling into my new job and new life, I was asked to take part in a working group that was trying to understand how the pending introduction of the euro would impact trading and pricing in the euro-area financial markets.

It was a fascinating project, one requiring a look back at the evolution of European capital markets and the currencies in which they traded. I spent time studying the classical gold standard, interwar currency crises, Bretton Woods origins and breakdown and the development of the Exchange Rate Mechanism (ERM), forerunner to the euro.

Perhaps more fascinating were the discussions I had about the euro with my German colleagues and friends I had made since moving over. As with so many things political, they were deeply divided. Many thought the euro not only a good idea for Germany and Europe, but an inevitable one. Others thought it an unsustainable pipe dream that would end in disaster.

Triumph of the optimists? Or hidden disaster?

That the euro has endured now for over 20 years would seem to vindicate the former group. It has survived one crisis after another; some home-grown, some imported from abroad. Notwithstanding frequent disputes regarding the specifics of European Central Bank (ECB) monetary policy or EU economic policy, the euro itself remains popular.

But just because something is popular does not make it successful. The euro may have endured, but has it delivered on its promises?

Perhaps it has even reneged on them. Could it be that we don’t even know the truth about just what has been happening beneath the surface of the single currency project during the past 20 years?

Bank accounting expert Bob Lyddon believes so. He has recently completed a major study titled “The Shadow Liabilities of EU Member States and the Threat They Pose to Global Financial Stability”. In it, he exposes what he describes as “financial rule-breaking” on a massive scale. Bank capital ratios are systematically overstated and government liabilities understated.

As Bob explains, the euro-area financial system has become a house of cards, threating to topple over at any time and only held up by a continual supply of ultimately inflationary liquidity by the ECB.

This past week I had the pleasure of interviewing Bob about the topic and its implications for investors in the euro-area, UK and around the world. It was both enlightening and frightening in equal measure.

In that context, it is entirely understandable that interest in monetary alternatives continues to grow. The gold price in euros, dollars and sterling is near record highs. And ever since the recent bank failures in the US, there has also been a strong recovery in cryptocurrencies.

I strongly recommend you watch the video.