here is an excerpt from a article on money and markets in regards to the Euro
"Europe Is the Most Vulnerable to
Emerging Market Defaults
When it comes to emerging markets, Eastern and Central Europe account for $1.6 trillion in loans from G10 countries’ banks. Asia and Latin America are next on the list — recipients of $1.5 trillion and $1 trillion, respectively, according to Morgan Stanley’s Global Economic Forum.
And if you break down the loan originators, Western Europe and the United Kingdom are where roughly 45% of these emerging market loans came from. In contrast, only 9% originated from U.S. or Japanese banks.
Heck, European and U.K. banks are more exposed to emerging economies in Eastern Europe, Asia and Latin America!
Take Ecuador, for example. They recently revealed they’re at risk of defaulting on $4 billion worth of debt. And this is just the tip of the iceberg. Plenty more defaults will likely follow from countries who failed to invest sufficiently in anything but the hope that the global economy would never stop speeding along.
Currencies of emerging markets are no doubt set to suffer as the cycle of leveraging reverses course. But the euro is also hugely vulnerable.
The euro zone is already struggling to defeat the more direct effects of the global financial meltdown. But if a wave of defaults swells up, it’s going to add a huge, additional burden on the banks of Western Europe. Defaults on these loans could mean hundreds of billions — if not trillions — of dollars in writedowns.
Among other things, this means Europe will have a tougher time than the United States in conquering recession.
If recent history is any guide, government and central banks will be as active as ever. More specifically, the European Central Bank will make a concerted effort at saving the economy with interest rate cuts.
When they do, they’ll surely undercut the euro. My first longer-term target will be par with the U.S. dollar. And that could come sooner than the market thinks! "
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